Market Analysis for Tobacco

Question and Answers

Market Analysis代写 Cigars and chewing tobacco are substitutes for cigarettes. Substitute products offer consumers with choices of ···

 

Question 1  Market Analysis代写

a.

Cigars and chewing tobacco are substitutes for cigarettes. Substitute products offer consumers with choices of consuming equally good alternatives. When price of cigarettes increases, tobacco users will reduce consumption and consume more of cigars and chewing tobacco with comparatively lower prices. In the perspective of another producing firm, substitute products are rivals. In this case, cigars, chewing tobacco, and other similar products are rivals to cigarette and among themselves. Change in price of any of these close substitutes will have a direct impact on other related products.

b.  Market Analysis代写

The prices rise exponentially when taxation for cigarettes increases. Because cigarette has close substitutes, its demand will reduce as tobacco users turn to lower-priced cigars and chewing tobacco. It results in the shift and rise in both the equilibrium price and quantity of cigars and chewing tobacco because they are close substitutes for cigarettes. The figures 1 and 2 below shows supply and demand for cigars and chewing tobacco when tax on cigarette is increased.

Figure1

Market Analysis代写
Market Analysis代写

Substitution of cigars for cigarettes will shift demand curve to the right from D1 to D2. The shift in demand curve is because of the change in a factor other than price. It also shifts cigar’s market equilibrium to the right at point where the combination of price and quantity is higher. As a result, there are many buyers in the market. When the demand is high prices tend to rise, and more suppliers get attracted to the market to serve consumer needs. Therefore, the demand for cigar increases as tax on cigarette increases and vice versa.

Figure 2

2
2

On the other hand, substitution of chewing tobacco for cigarette will shift demand curve to the right from D1 to D2. The shift in demand curve is an indication of change in a factor other than price. It also shifts cigar’s market equilibrium to the right at point where the combination of price and quantity is higher. As a result, there are many buyers in the market. When the demand is high prices tend to rise, and more suppliers get attracted to the market to serve consumer needs. Therefore, the demand for cigar increases as tax on cigarette increases and vice versa.

c.  Market Analysis代写

About the graphs in part (a) above, increasing the tax on cigarettes results in people substituting cigars and chewing tobacco for cigarettes. Similarly, if any all other substitutes are highly-priced except product, tobacco users will flood to buy it. If policymakers intend to reduce the total consumption of tobacco, they should consider increasing tax on cigars and chewing tobacco and any other complementary products.

When prices are high the demand for these products will reduce and hence reduction in their consumption. The city authority can ban advertisements of all tobacco product and instead replace the adverts with extensive awareness on health hazards associated with tobacco use. Also, public education programs combined with increase in taxation on tobacco products may be useful in lowering consumption.

Question 2  Market Analysis代写

a. Figure 3 below shows the market and firm equilibrium for pretzels. The market supply S1intersects with market demand curve at price P1. At market price P1, q1 of pretzels will be produced. The total pretzels are given by 1,000 * q1. The firms make zero profit because average total cost is equal to the price of pretzels.

3
3

Where

ATC is the Average Total Cost which is the sum of average variable cost and average fixed cost.

MC is the additional cost added to the total cost to produce one other unit of output.

The firm will make a profit where marginal revenue is equal to marginal cost (MR = MC).

When there is a deficit in supply, demand is suppressed, and hence prices increase to attract more suppliers.

b.  Market Analysis代写

The reduction of pretzel stands to 800 will shift the market supply curve (S2) to the left, as shown in the above graph. The market equilibrium will also adjust to 800 units of pretzels and price p2. P2 becomes the new market price when each stand in the market produce q2. 800 * q2 gives the total market production. The firms will make profits because the average total cost is below the price and marginal cost. In a scenario that the market is unrestricted, the firm will be free to enter to share extra profit in the market. 800 * q2 gives the overall market production.

c.

Change in marginal cost is not attributable to a change in license fees. Increase in license fee will not affect the output of a firm. However, the profit will be reduced. As long as the firms are not making any loss, they will continue to operate. If the market supply curve S2 is not affected by the changes, the equilibrium price p2 will remain as well.

d. 

The city should increase the license fee by the profit margin of each firm. A such, the highest tax is given by (p2 – ATC2) * q2.

Market Analysis代写
Market Analysis代写

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