Question

1. The government in your country is considering three programs that affect the market for cigarettes.

• Program 1: Media campaigns and labelling requirements aimed at making the public aware of the dangers of smoking.
• Program 2: A price-support for tobacco farmers
• Program 3: a cap on the number of cases of cigarettes sold per quarter at 20,000 cases

Determine the impact on the market for cigarettes if Program 1, 2, 3 is implemented.

1. Impact on demand
2. Impact on supply
3. Impact on price
4. Impact on quantity

Answer 1

Answer 1) In program 1 due to media campaigns and increasing public awareness, the demand for cigarettes will fall down which is shown by the leftward shift of the demand curve. The supply will still remain the same so there won't be any shift in the supply curve. Due to a leftward shift in the demand curve, both the equilibrium quantity and price will fall.

Answer 2) A price support for domestic farmers will give an incentive for farmers to grow more tobacco as the cost of production for the same level of tobacco will fall down. As a result the supply of the tobacco will increase, leading to a further increase in supply of cigarettes which is shown by rightward shift of the supply curve. The demand will remain the same and thus the demand curve will not change. Due to an increase in supply of the cigarettes, the equilibrium price will fall down and equilibrium quantity will increase.

Answer 3: