Economics Internal Assesment

Topics: Supply and demand, Smoking, Nicotine Pages: 4 (781 words) Published: October 18, 2009
Title of extract:
Smokers stock up on cigarettes to avoid tax hike - Juneau braces for bar-restaurant ban to take effect Jan. 2

Source of extract: The Juneau Times/Associated Press

Date of extract: December 30th, 2004

Word count: 735 words

Date the commentary was written: December 10th, 2005

Section of the syllabus to which the commentary is related: Section 2

Candidate name: xxxxxxx

Candidate number: xxxxxxxx

This article considers attempts to reduce smoking. State and local politicians are attempting to do three things. Firstly, they are placing a local ban on people smoking in restaurant/bars in Juneau. This may well lead to a shift in the demand curves for both restaurant/bars and for ordinary bars. Tastes of smokers should change and they will leave restaurant/bars and move to bars where they can smoke. This is shown below:
Restaurant/bars Bars
Price Price
($) D1 DS ($) D D1 S




0 Q1 QNumber 0Q Q1Number
of customersof customers

The hope of the politicians is that making smoking difficult for people will lead to a fall in the demand for cigarettes as some people may stop, or reduce, their smoking, and thus the demand curve for cigarettes will shift to the left.

The second strategy is to increase the state tax on cigarettes. This is a specific indirect tax . The demand for cigarettes is relatively inelastic and the text gives circumstantial evidence for this: “..he didn’t know about the increase, but it wouldn’t affect his use of cigarettes.” “Nobody’s quit smoking because of the smoking ban.” The first effect of the tax may be panic buying, before the tax rise comes. Thus, if hearsay is correct – “...customers are purchasing up to four times the amount of cigarettes they normally buy,” - there...
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