ECO202 Economic Ideas and Models for Business Assignment Sample

ECO202 Economic Ideas and Models for Business Assignment Sample

Introduction Of Economic Ideas and Models for Business

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Part (A)

Supply:

Supply can be identified as the total amount of goods provided by the company in the market for the fulfillment of the demand for their products. If all other factors are constant if the price is increased then all company increased their Supply in the market for maximization of their profits.

 Demand:

 Demand is an indicator of the requirement of products in the market for the company. Demand also indicates the willingness of customers to purchase the product in the market for the company. The demand is always fluctuating in the market which is dependent on various factors in the market so if there is any hike in the price and demand will diversely decline products in the market. Demand and supply determine the actual prices of goods.

Supply Curve:

The supply curve indicates the graphic representation of supply and price for the product in the market and also indicates the performance of the company in terms of supply of their products for the fulfillment of demand in the market. It also indicates the correlation between cost and quantity which is supplied in the market for better performance of the company to fulfill customers' demand for their products. The supply curve changes the fluctuation in price in the market and also on the demand in the market so when the supply curve gets downward movement then there is a decrement in the supply of products and if the supply curve gets upward movement then there is an increment in supply in the market.

Demand Curve:

The demand curve represents a graphical representation of demand generated in the market for the products of the company. Furthermore, the demand curve also indicates the state statistical relation between demand and price for the product in the market. If other factors are constant then the downfall in the demand curve reflects the decrement of demand and the upward movement of the demand curve reflects increment in the demand of the product in the market.

Market equilibrium:

Marketing equilibrium is a condition where demand and supply equal light for a specific point in the graph. Market equilibrium represents the point where the demand curve and supply curve cut each other and it also represents the equations of demand demanded products is equal to the supplied product in the market for the company.

Price Elasticity of demand:

Price Elasticity of demand reflects the flexibility of movement concerning movement in the price of the products in the market. As we have mentioned earlier that when the price increases, the quantity demanded of it reduces for any product. But, to what extent it will fall, depends on various factors such as customer's buying power, income, willingness to spend money, price sensitivity, and others.

Smoking is a habit that is hard to kick even if the price of cigarettes increases, hence we can say that demand for cigarettes is not as elastic as demand for other consumer products. As many research and studies state that increases in the price of cigarettes are followed by moderate falls in consumption.

Effects on the supply or demand curve, equilibrium price, and quantity in the following cases are as follows:

(i) Price of electronic vaporizers (vapes) increases

Effect on Supply Curve:

As the vaporizers price increases, the cost of suppliers will increase. At the increased cost, the margin of profit will remain less. To maximize profits, the supply of quantity will be less in the market till the cost of production reduces or the price of cigarettes increases to cover the increased cost from the sale of cigarettes. Hence, the supply curve will move in a downward direction.

Effect on demand Curve:

If the cost of production increases, the price for the product will also need to increase to cover the increased cost and to maintain profit margin. Hence, the buyers will be less willing to purchase at high prices. But, the higher price will only affect those whose buying power is low due to its inelastic demand.

Effect on equilibrium price & quantity:

If there is a decrease in supply then equilibrium price will automatically increase if other factors are constant in the market. As the decrement of supply increases, the absence of products in the market can be the major cause of the hike in demand of the product in the market as well as the price for the products.

(ii) Workers in the cigarettes industry have an increase in wages:

Effect on supply curve:

An increase in wages leads to an increase in the cost of production. To recover the cost, the supplier may want to hire fewer employees which thereby reduces the quantity supplied. So, the supply curve will move in the downward direction.

Effect on demand curve:

An increase in wage rates will increase buying power and so the consumption. So, the demand curve will move in the upward direction.

Effect on equilibrium price & quantity:

An increase in demand and a decrease in supply will cause a rise in equilibrium price but the effect on equilibrium quantity cannot be determined in this case as it depends on the relative size of the changes.

(iii) The research concludes that smoking will cause cancer:

Effect on demand curve:

Cigarettes are a demerit good and consumption of this can cause cancer. Research on the disadvantages and health impacts of cigarettes can help the aware general public. This will reduce the demand for cigarettes.

Effect on supply curve:

As the equilibrium price decreases, suppliers will hold the supply till the price rises again. Hence, the supply of cigarettes decreases. Hence, the Supply curve will shift in the downward direction.

Effect on equilibrium price & quantity:

In this scenario demand for the product is decline due to negative publicity in the market which also impacts the price of the products for the same. Here supply adjusted to be constant as marketing or branding cannot affect the supply of the product although in the near future when the price of the product gets decreased then supply will be declined for products.

Part (B)

A high intake of cigarettes can cause cancer. It is hazardous to health and it impacts our society badly. It is the largest cause of preventable death. The government needs to take steps to reduce the consumption of cigarettes. Government can do so by taking various steps such as:

• Increasing the prices of cigarettes
• Implementing strict laws
• Charging higher taxes
• Advertising
• Research
• Awareness Programs

Welfare effects of using price controls and taxes:

In the current scenario, governments are used more taxation on tobacco and cigarette to overcome the uses of cigarettes in the country. With new taxation policies, the government increased the cost of tobacco and cigarette which can be the most effective strategy to reduce smoking and also increase the health awareness program to overcome the demand for cigarettes in the market. There is an average 10% increase to in the price of the product in for the market but there is no decline in the demand of the product as around mostly adult populations are demanded cigarettes but this will be reduced in near future as the government has double up the taxation for cigarette and tobacco products.

Increasing prices and taxes on cigarettes is a win-win situation as it results in fewer minors starting to smoke, and also more adults quitting cigarettes (Gong et. Al., 2017). Revenue loss caused by a fall in consumption will be recovered by charging higher taxes. So controlling prices and charging taxes on cigarettes serves a various purposes which is as follows:

• To improve the Welfare & Health of society
• To increase revenue to the government.

Fund collected by taxes can be utilized for tobacco prevention programs, services, and materials aimed at public health and wellbeing improvement (Beck & Lein, 2020).

Smoking is a major reason for diseases such as lung cancer and heart disease, which take lives of the millions of people every year. Also, cigarette generates a high proportion of the economic cost including spending on medical and hospital expenses to treat the diseases caused by the cigarette as well as lost productivity and income due to illness and deaths (Alkali et al., 2018). The general public is also exposed to smoke because of those who smoke in public areas, stations, buses, trains. This leads to discomfort in breathing in old age people, infants, and pregnant women. The government should also make stricter laws regarding the use of cigarettes and their decomposition. High taxes on cigarettes will reduce its demand. This is not only beneficial to the government but also to the general public as everyone has the right to live in a safe environment.

Higher price impacts more to backward class people and therefore quantity demanded reduce more in the weaker class of people. This ultimately helps to reduce socioeconomic inequalities in health. The public is generally supportive of taxes on hazardous products, particularly if the proceeds are to be used for healthcare purposes or improvement of the overall welfare of the society.

The rich class of people is less price-sensitive so their consumption will remain the same as before irrespective of the increase in prices. In this way, the government can collect more taxes from the rich class of the population. This will help to reduce income inequalities. Richer class of people pays higher taxes on their income but they pay very less proportion of their income on indirect taxes i.e. taxes levied on the purchase of goods (Zhang et. Al., 2017). Hence, charging more taxes on luxurious products and hazardous products will generate more tax revenue to the government from the rich class of people and it will reduce income inequality of the country.

The ultimate motive behind a hike in taxation for cig cigarette rates is to improve the health of citizens and also decreased the demand for a cigarette in the market. There are various myths spread by the tobacco industry which affects adversely the positive impact of the price control and taxation policy formed by the government for a cigarette and other tobacco products. The tobacco industry uses incorrect arguments (Ding et. Al., 2018). Hence, it is time to break those myths and to throw light on the actual impact of cigarette taxation.

• Myth 1: Tobacco tax increases will decline the tax revenue because of a fall in consumption among the poor class of people or those whose buying power is low.

The actual scenario is Tax revenue increases because a fall in consumption is less than proportionate to the rise in price. Therefore, It helps in increasing government revenue.

• Myth 2: Economic activity will reduce because of tobacco/cigarette taxation

The actual scenario is spending on cigarettes will be replaced by spending on other necessary and consumer products

• Myth 3: More taxes on cigarettes will create a financial burden on the weaker class of the society as they spend a large proportion of their income on these products.

The actual scenario is weaker class is more price sensitive. They will quit or reduce their intake of cigarettes. It will improve their health and reduce their spending on illness.

• Myth 4: Cigarette tax and price differences between countries will give an undue advantage to another country whose price & taxes are low. It will increase the import of the country.

The actual scenario is various other factors helps to encourage illicit trade such as weak government policies, weak custom duties provisions, weak excise department control, corruption, and unions of cigarette manufacturers. Hence, it is very much important to introduce cigarette taxation together with strict tax administration to reduce tax evasion by manufacturers.

World Health Organization encourages:

• Government leaders support cigarette taxation as an important public health policy.
• Ministries of health conducted various events and programs for in-built and raised awareness of loss due to Cigarette consumption and also provide benefits for taxation on the products. Furthermore, it also helps ministries raise taxes and generate more revenue to the government which can be financial supports for them.
• Ministries of finance to use cigarette taxation as a central policy to reduce consumption and to prevent the tobacco industry from misguiding tax department
• Families and households to guide and help family members and neighbors to quit smoking.

Reference

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• Cournot, A. (2020). 12.2 Deriving the Supply Curve. Intermediate Microeconomics with Microsoft ExcelR, 431.
• He, Y., & Lin, B. (2017). The impact of natural gas price control in China: A computable general equilibrium approach. Energy Policy, 107, 524-531.
• Gong, X., Duan, L., Chen, X., & Zhang, J. (2017). When social network effect meets congestion effect in wireless networks: Data usage equilibrium and optimal pricing. IEEE Journal on Selected Areas in Communications, 35(2), 449-462.
• Beck, G. W., & Lein, S. M. (2020). Price elasticities and demand-side real rigidities in microdata and macro models. Journal of Monetary Economics, 115, 200-212.
• Alkali, M. A., Sipan, I., & Razali, M. N. (2018). An overview of macro-economic determinants of real estate price in Nigeria. International Journal of Engineering & Technology, 7(3.30), 484-488.
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• Ding, X., Huang, R., & Wang, X. (2018, July). Analysis of Factors Affecting the Housing Price in Different Cities of China and Macro Control Measures. In 2018 International Seminar on Education Research and Social Science (ISERSS 2018) (pp. 161-168). Atlantis Press.