Economics - Cigarettes
Examine the effectiveness of indirect taxation of reducing cigarette and tobacco consumption. Use a Supply and Demand graph (14 Marks)
Cigarette and Tabaco consumption has led to a lot of stress to the National Health Service (NHS) as the consequences of smoking cigarettes are causing many illnesses which the NHS has to deal with. The government has stepped in to reduce the consumption of cigarettes and tobacco by placing an indirect tax on the products. An indirect tax is a tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products.
Cigarettes and Tobacco is demand inelastic, which means that the demand has a very small change due to a price change. The reason behind this is that the two products have transformed into a necessity for the majority of the population therefore they need to buy it.
As tobacco and cigarettes get taxed, instead of the suppliers paying off the tax, they simply just raise the price which means that in the long term the customers will pay off the tax as they are paying a higher price. What some shops may decide to do is to pay half of the tax off themselves and make the customers pay the other half of the tax off with indirect tax in order to stay competitive and to generate more sales as a very high price will lead to a decrease in demand of that specific shop. As the shop has higher costs, this will lead them to supply less of the same product and charge a higher price in order to cover the costs, therefore the supply curve will shift outwards. This can be illustrated on a Supply and Demand graph.
In my opinion, indirect taxation on cigarettes and tobacco is not effective as they are both demand inelastic therefore no matter what the price is, there will always be a very high demand for the product.
A disadvantage of indirect taxation is that prices have risen so high that people cannot afford cigarettes from shops and turn to the
Cigarette and Tabaco consumption has led to a lot of stress to the National Health Service (NHS) as the consequences of smoking cigarettes are causing many illnesses which the NHS has to deal with. The government has stepped in to reduce the consumption of cigarettes and tobacco by placing an indirect tax on the products. An indirect tax is a tax that increases the price of a good so that consumers are actually paying the tax by paying more for the products.
Cigarettes and Tobacco is demand inelastic, which means that the demand has a very small change due to a price change. The reason behind this is that the two products have transformed into a necessity for the majority of the population therefore they need to buy it.
As tobacco and cigarettes get taxed, instead of the suppliers paying off the tax, they simply just raise the price which means that in the long term the customers will pay off the tax as they are paying a higher price. What some shops may decide to do is to pay half of the tax off themselves and make the customers pay the other half of the tax off with indirect tax in order to stay competitive and to generate more sales as a very high price will lead to a decrease in demand of that specific shop. As the shop has higher costs, this will lead them to supply less of the same product and charge a higher price in order to cover the costs, therefore the supply curve will shift outwards. This can be illustrated on a Supply and Demand graph.
In my opinion, indirect taxation on cigarettes and tobacco is not effective as they are both demand inelastic therefore no matter what the price is, there will always be a very high demand for the product.
A disadvantage of indirect taxation is that prices have risen so high that people cannot afford cigarettes from shops and turn to the