Supply and Demand Curve in Tobacco Industry

1996 words 8 pages
Economics Report and Demand & Supply curve
Of cigarettes in Australia
Recently, there has been a new trend in the tobacco industry in Australian society due to the increased prices of cigarettes, mainly for the reason that “with more than 3.1 million people still smoking today, tobacco still being the leading cause of death by a wide margin… “ (Scollo & Winstanley, p.xiii, 2008). Therefore, this report will illustrate the market structure of Australia tobacco industry, and then make analysis about the price chances on the demand and supplies for cigarettes. The third and the fourth part of the report are about the impacts of this change and some government policies for the tobacco industry, respectively.
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This law has been applied since April 2010 and “the legislation makes the increase permanent” (ABC News, Cigarette tax hike laws passed, 2010). As a consequence, this increase in costs results in the decline of cigarettes supplies.

Demand and supply curve of tobacco industry due to the increase of cigarettes tax

Price D S1 S Decrease



S1 S D QS Q1 QD Quantity

New equilibrium




Figure 1

Due to the increase of tax, the price of cigarettes goes up, and that is the reason why the supply of tobacco is in the upward trend.
The effect on the tobacco industry of Australia due to the growth of tax: * The decreasing supply of tobacco industry is represented by a supply curve shifting left. * Supply declines resulting in disequilibrium and there is a shortage because now the quantity of demand is greater than that of supply at price P (QD > QS ). * To restore the equilibrium, the price will rise from P to P1. * Supply expanded from QS to Q1 and demand contracted from QD to Q1


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