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Economic Analysis

In: Business and Management

Submitted By arimi
Words 819
Pages 4
PAF 3102 Economic analysis
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Due date: Question one
Part A
Increasing taxes on cigarettes will lead to reduction of smoking among young men, low income earners, and pregnant women. This will lead to a reduction of house hold expenditures such as smoking healthcare costs. However, it is not a guarantee that the numbers of smokers will be reduced by 50%, this means that the city should not expect $90million revenue on tax.
Part B
NO, a permanent increase of $ 0.40 on a packet of cigarettes will not have any effect on smokers. This is because the economy is growing and with economic growth there is growth on salaries and wages. This means more population will be able to afford the cigarettes and this will lead to increase in demand. As prices decrease the demand increase, in 5years more people will be able to afford the product since the price will not be equivalent to the standard economic growth.
Part C
This is true, most of the students depend on their families and guardians. This means that if the price of the cigarettes is increased this will loser the demand of the commodity since most of the students will not afford the same commodity for a long period of time. On the other hand if the price lowers then it will increase the demand of the same commodity since it will be affordable.
Question two
Part A
Subsidy products they affect the market by reducing prices in the market. Before introduction of subsidy the market easily attains market equilibrium where the demand curve intersects with the supply curve. When subsidies are introduced it is difficult to achieve equilibrium since the prices falls and the quantity rises. The introduction of more fresh product will lead to high number of surplus which means that the subsidy will cost more than the benefit they can offer to the public....

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