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Economics – Cigarettes

NASH 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 ax 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

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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 Economics – Cigarettes By shirtwaists very high demand for the product. A disadvantage of indirect taxation is that prices eave risen so high that people cannot afford cigarettes from shops and turn to the black market which is increasing the crime rate which adds more stress and pressure on the police.

An advantage of indirect tax is that the government has more tax revenue than before therefore they could subsidies the NASH for better quality doctors and healthcare which can possibly benefit everyone. All in all, I believe that indirect taxation is not very effective in reducing the consumption of Cigarettes of tobacco as they are necessities so people will not stop buying them regardless of how high the price goes.

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