According to the current issues reported in Malaysia, the price of cigarettes is increased by 20 cents to RM 10.20 per packet, said by the Malaysian government. In my opinion, cigarettes is something that smokers would still buy even if the price increases.
Supply and demand is one of the key concepts of economics and it is considered as the backbone of a market economy. Demand refers to how much quantity of a product or service is required by buyers, whereas supply is referred to how much the market can offer. Hence, the price is a reflection of supply and demand.
The
relationship between demand and supply underlies the forces behind the distribution
of resources. In market economy theories,
demand and supply theory will distribute resources in the most efficient way.
One of the
elements that affect demand is expectation of price that will be in the future.
If buyers have expected the price will increase, they would have purchase more
before the price is being raised. On the other hand, law of supply simply means
that the suppliers are willing to produce more products at a higher price
compared to a lower price. There is an inverse relationship between price and
quantity demanded, hence when the price increases, the quantity of demand
decreases. Hence, there will be more suppliers and the quantity supplied will
be higher. Suppliers or producers try to produce more in that time period so
that they can increase or maximize the profits that they earned. For example,
when the price of cigarette is increasing, the quantity of supply will be
increased while the quantity of demand will be decreased.
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price increases, so does the opportunity cost of buying that certain good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price increases, so does the opportunity cost of buying that certain good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.
A,
B and C are points on the demand curve. Each point on the curve
reflects a direct distribution between quantities demanded (Q) and price
(P). At point A, the quantity demanded will be Q1 and the price will be
P1, and so on. The demand relationship curve illustrates the negative
relationship between price and quantity demanded. The higher the price
of a good the lower the quantity demanded (A), and the lower the price,
the more the good will be in demand (C).
When the price of cigarette is higher, the quantity of supply will be higher because supplier can earn more profit while the quantity of demand is low.
Last but not
least, I think that government is using the concept of price ceiling to control
the market of cigarettes. There are few reasons that the government uses price
ceiling in the tobacco market. Firstly is to avoid black market as it is an
illegal business of buying or selling goods or currency in violation of
restrictions such as price controls or rationing. For example, some suppliers might
be selling cigarettes with the price that higher than
the government set to them.
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