Cigarette price increase
The article is about the minimum price of cigarettes of RM7 for a pack of 20 cigarettes is not a new measure and has been in place since January 2010. More than half of the minors (53%) said they buy their own cigarettes, while 30% got them from friends in Malaysia, 55% of the adolescent smokers smoke less than 10 sticks per day in Kelantan, 95% of shops sold cigarettes to minors without verifying their age. There are over 80,000 retail outlets selling cigarettes throughout the country and are located near schools. About 31% of teenage boys and 5.3% of girls are smokers. Australia and Singapore have high tobacco tax and successfully reduced smoking among adolescents as a pack of cigarettes costs A$15 (RM38) and S$12 (RM29.80) respectively. http://thestar.com.my/news/story.asp?file=/2012/9/12/focus/12008752&sec=focus When a price floor is set, there will be a market failure because that will be an underproduction. Even the price floor is set but it will not easily affect the demand and the supply of the cigarette as smokers will not just stop smoking because of that. A price floor makes the buying price and the selling price results in inefficient underproduction. If the market is underproduction then the surplus problem in the market will be solved. The underproduction will make losses to the social is because it do not satisfy the need of people in the market.
Graph of price floor at RM 10.20
Before this, the market equilibrium of the cigarette is at RM10 and starting from 22 October 2012, government set a price floor for the cigarette at RM 10.20 so all of the suppliers of cigarette must set the price at that level and the market equilibrium now changes. Besides that, there will be a market failure even the government set the higher price floor for the cigarette because government could not stop the smoker from smoking even if the price floor for cigarette is set higher as the smokers will not stop smoking just because...
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