The Australians have a common tendency of smoking cigarettes. The smoking rate of the adult includes the persons who are regular smokers. At present, the smoking rate of an adult of this nation has declined as compared to previous few years (Clarke and Prentice 2012). This essay reflects on the present consumption of cigarettes and its market. It also facilitates in investigating the factors that influences cigarettes demand and supply. In addition, the product nature and its demand elasticity is also discussed in this study. Moreover, the elasticity of cigarettes has been assessed according to its current demand and supply. Few measures adopted by the Australian government that affects the cigarettes production is also explained in this study.
The market is analyzed based on the demand and supply of a particular product. Product demand refers to the consumers wants that considers their capacity of purchasing power. There are different variables that influence products demand discussed below.
Cigarette price- Goods price is inversely related with the demand for quantity of the good. Therefore, increase in cigarettes price leads to fall in demand for cigarettes.
Customer’s income level- As cigarette is a luxury good, the individuals satisfies their demand if their income level rises. Thus, the purchaser’s income and the demand for quantity of cigarettes are positively related with each other.
Consumers taste and preference- The demand for a particular good also depends on the consumer’s tastes and preference. The preference for cigarettes varies among the individuals. This change in preference might increase or decrease the cigarettes demand in the market.
Supply of commodities refers to the total commodity that the manufacturer is eager to supply in the current market. Few variables that influences the cigarettes supply are illustrated below:
Goods price level- The commodity price provides a positive effect on the cigarette supply. Therefore, as the cigarette price increases, the manufacturers strategize in selling more good and vice-versa (Callard and Collishaw 2013).
Input costs- The input cost including the labor and raw materials cost acts in negative way on the supply of total amount of cigarettes in the society (Newbold et al. 2012). However, the cost of production increases with the increase in input cost, thereby decreasing the product supply.
Analyzing the result of demand and supply of certain product
According to law of demand, the cost of cigarettes is negatively related with the demand for its quantity with other factors influencing product demand remaining stable. As a result, this leads to negatively sloped demand curve (Koo 2013). On the contrary, the law of supply depicts positive relationship between the supply of total quantity of cigarettes and its price. Therefore, this reflects positive sloping supply curve . The market equilibrium occurs when the demand for product intersects with the supply of product. This portrays the equilibrium price of the cigarettes and its quantity demanded in Australia.
Figure 1: Equilibrium price and quantity demanded of cigarettes
Source: (As created by author)
In the above diagram, DD represents the demand curve for cigarettes and SS depicts cigarettes supply curve (Rios et al. 2013). The intersection of these two curves corresponds to equilibrium price of cigarettes shown by Pe and its quantity demanded reflected by Qe.
Elasticity of a certain good signifies the sensitivity of demand for quantity of product in respect of its price change. In case of elastic goods, the change in demand for its quantity becomes higher than its price change (Scollo et al. 2014). Cigarettes are such kind of product in which small increase in its price leads to reduction in its total consumption. Hence, this portrays that cigarettes are elastic good. The figure shown below reflects demand curve of elastic product such as cigarettes.
Figure 2: Demand elasticity of cigarettes
Source: (As created by author)
In this diagram, cigarettes demand curve is flatter than original demand curve. Cigarettes initial price (P1) corresponds to the demand for its quantity (Q1). However, as price of cigarettes falls from P1 to P2, the demand for its total quantity rises from Q1 to Q2.
Measures taken by the government
The Australian government has taken an initiative in prohibiting smoking in public places. They also advised the cigarettes manufacturing entities to include graphic health caution on the cigarette packets (Bauer 2014). In addition, Australian government raised tax of cigarettes and hence the cost of cigarettes production. They also adopted a law of increasing tobacco excise in three years gap. The prohibition act of tobacco advertisement is also designed by the government that aims to impose restraint on exposing public to its advertisement through media. These policies adopted by Australian government have reduced cigarettes consumption and this declined its demand.
Recent statistics reflect that smoking rate among adults in Australia reduced in 2017 as compared to 2016. The variables influencing cigarettes demand and supply in the nation has facilitated in assessing the market change for cigarettes. As cigarettes is analyzed as elastic product, small change in its price impacts on its quantity demanded in higher way. Thus, Australian government has implemented various measures for decreasing cigarettes consumption in the nation
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