Question

Part-1
Government insists the society to stop consuming the cigarettes and to protect their health.
Smoking is injurious to health is a slogan used by all the countries throughout the world in which
creating awareness among this cigarettes smokers. Cigarette causes cancer and other diseases to
the human body. Government wants to reduce the cigarette consumption, hence imposing higher
amount of tax by which increasing the price to cut the cigarette smoking. There are two methods:
attempted to achieve this objective.

First Method:
Creating awareness through advertisements in theaters, newspapers, television and other
channels, printing health warnings on cigarette pockets, and posters fixed in shops are the
various measures taken by the government to reduce the demand of the cigarettes. Based on the
government initiatives, personal healthcare issues and the taste and preferences of the smokers
are not favor for the product when the prices are constant and leads to shift the demand curve.

Questions:
3- Explain the effect of government initiatives on supply of the product with tabulated
numerical illustrations as examples.

4 Explain the effect of government measures on Demand of the product with
tabulated numerical illustrations as examples. And also draw the diagrams.
(Drawing: Search the appropriate image from Google and paste in your answer
sheet). (5 Marks

Part-II
Second Method:
Government has been trying to increase the price of cigarettes by which imposing maximum tax
on the product. Higher price discourages smokers to reduce the numbers of cigarettes smoking in
a day. The demand of the product meets changes in terms of production and consumption, thus
the demand curve is to be changed.

6. Because of the increase in the price of the product will it be shift in the supply and
demand curve? What are the factors which will affect the shifting in supply and
demand: Illustrate the answer with a table and a graph.

7- How the initiative taken by the government will affect the cost and revenue of the
supplier. Also explain how the profitability of the company?

Answer 1

3. When government apply different social platform and other campaign to reduce the cigarette consumption by pursuing the consumer to take care of his health first it will shift the demand curve. As it affect the consumer first to match the demand and supply producer will reduce the production and it will cause the supply curve to shift left.

4. Much of the consumer which is rational and take care of his health will understand the serious health problem associated with cigarette consumption. Therefore they reduced their daily cigarette consumption and some stop consuming it.

Numerical and graphical explanation of wave mentioned impact is in the figure.

6. When tax is imposed on the the price of cigarette it will cause the increase in price and shift in the supply curve to match the demand curve. The effect of price will depend upon the price elasticity of consumer. Some part of tax will be passed on the consumer. Higher the price elasticity less amount of tax will be beared by consumer. While the consumption of cigarette is inelastic then more part of tax will be passed on to the consumer. Here imposing tax of 10 dollar will cause the demand to reduce bi 30 units therefore supply curve shift to match the demand at 60 unit. This is similar with the case of campaign by the government that's cause the reduction in quantity not by tax and price effect so price will be Same only quantity will be changed

7. It will reduce the producer and consumer surplus and some dead weight lost. Of course government earn some revenue. Producer will reduce the production of cigarette and so they will lose some revenue while cost will be same.