follow the instruction please

Economics 121/Principles of Economics
FLINDERS UNIVERSITY
Flinders Business School
BUSN1013 Economics for Business 2013
Assignment 2
Background
The purpose of this assignment is to provide you with an opportunity to demonstrate your understanding of fundamental concepts covered up to and including Week 6 of the topic. You will apply those economic models to a real world situation.
Discussion
Students are encouraged to discuss the question and the issues raised by the question with other students. This does not mean to give other students a prescription of what to do, or the answers to the questions. It means to stimulate thought and the approaches you could take to answering the issues. There can be a fine line between plagiarism and discussion. Be careful not to cross that line - discussion is a normal academic activity and helpful, but plagiarism is viewed very seriously by the University.
Tutors will not answer direct questions about the question, but may be approached to answer questions on the concepts the questions draw on.
Word Limit
There is no word limit. You should answer the question fully, with your diagrams illustrating your words, ensuring you include all the important information. At the same time, however, you should answer in as succinct a manner as possible. This is a very important business skill and one that you should seek to develop. Hence, your answer should be to the point, focused on answering the questions, and refe
ing to fully labeled diagrams that will illustrate the points being made.
Due Date: Monday 27th May at 4.00pm
Submission
Assignments must be submitted to Room 258 SSS with a completed assignment cover-sheet that must be attached to the front of the assignment.
Marks
The assignment will be marked out of 100. Please see the marking scheme below. This assignment is worth 15% of your final mark.
Presentation
Assignments must be typed. It is perfectly fine to manually draw in the diagrams, by leaving spaces in your typing or by adding them as Appendixes. Diagrams can be time consuming and difficult to draw on the computer.
You must acknowledge your sources – i.e. where you are using the words or ideas of another person. A guide to citing your sources can be found at www.flinders.edu.au/SLC
efsharv.html. However, there is no requirement for any extra reading for this assignment.
The Assignment-:
Tobacco Taxes
Health concerns about cigarette smoking had been raised by various individuals as early as the 1950s, but it was not until the publication of the U.S. Surgeon General’s report on Smoking and Health in 1964 that the general public became alerted. The report declared, “cigarette smoking is a health hazard of sufficient importance in the United States to wa
ant appropriate remedial action.”1 The report provided the impetus for Australian Federal and State Governments to mandate a succession of laws and programs to warn smokers of the health risks. Cigarette ads were banned from being
oadcast in 1975, Quit campaigns began around the early1980’s and new health warnings were required on tobacco packaging in the early 1990’s.
Public health groups initially had little interest in using taxes as a means to address their concerns about health and smoking, prefe
ing to concentrate their attention on activities such as those mentioned above (advertising bans, Quit campaigns etc). However, work by several economists on the price elasticity of demand for cigarettes began to attract the attention of some anti-smoking groups. Several studies had estimated the price elasticity of demand for cigarettes by adults (defined in this case as all people aged 15 years and older) to be –0.42, and the price elasticity of demand by teenagers (defined in this case as all people aged 15 years to 19 years inclusive) to be –1.22.
With the lure of extra revenue for Governments and the virtue of discouraging smoking, taxes levied on tobacco became an increasingly important part of the policy response to discourage smoking. Tobacco sold in Australia is subject to excise and customs duty, and also GST which is levied on the tax-inclusive price. Customs and excise duties are levied as a fixed amount per cigarette. The rate at the 1st of Fe
uary 2012 was 34.68 cents per cigarette. Taxes on tobacco (cigarettes, cigars and other tobacco products) are a good source of revenue for the Australian Government. In 2011, approximately $8.74 billion was collected in tobacco taxes, including excise, customs duty and GST.4
The latest significant rise in the taxation of cigarettes was based on the Henry Tax Review, released in May 2010, which made a case for “a substantial one-off increase in tobacco excise.”5 This was based on the argument that “Australian retail prices for cigarettes are moderate by international standards and taxes constitute a relatively small share of the retail price”.5-:
(please see over)
Fig. 1: Tobacco Taxes as a percentage of price. 23 OECD countries
Tobacco taxes include VAT, and Australia's GST, as well as tobacco-specific taxes.
Source: Scollo & Winstanley (2008) as quoted in Chart 8.3, Panel A Australia’s Future Tax System (2010) Australian Government
This recommendation was implemented prior to the Review’s general release to the public, as can be seen in this extract from the Victorian newspaper, the Herald Sun dated April 30th 20106 -:
Scramble to buy cigarettes before 25% excise tax hike kicks in
Elissa Doherty, Evonne Ba
y From:AAP, Herald Sun April 30, 2010
RETAILERS have reported a spending blitz on cigarettes after the Rudd Government's price hike announcement yesterday.
The 25% rise in excise tax - equivalent to a $2.16 hike on a pack of 30 - applies from today, although some retailers are offloading existing stock at yesterday's prices.
Coles spokesman Jim Cooper said management responded to yesterday's rush by putting quantity restrictions on sales.
"We have seen quite a jump in sales of cigarettes,'' he said.
A number of tobacconists told the Herald Sun they experienced a massive rush on cigarettes yesterday ahead of the price rise.
"We were almost cleaned out today, it’s been crazy,’’ one said. "It’s so busy.
"This has just come out of the blue."
Yesterday, Prime Minister Kevin Rudd described his government's decision to hike the price of cigarettes as a "tough" one that "won't win the government any popularity".
Mr Rudd said the tax hike would be used to pay for better health and hospitals.
"This is a tough decision for the government,'' Mr Rudd said. "It won't win the government any popularity.
"The big tobacco companies will hate what we're doing.
"The government, however, makes no apology whatsoever for what it is doing.
"It is the right decision for two reasons: it will help people to stop smoking and, second, it will raise more money to invest directly into the National Health and Hospitals Network.''
“Cigarette price increases have been shown to be effective in cutting smoking, especially among young people who are particularly sensitive to price,” he said.
Sources:
1. http:
profiles.nlm.nih.gov/ps
etrieve/Na
ative/NN/p-nid/60 accessed 10th April 2013
2. See, for example http:
www.tobaccoinaustralia.org.au/13-1-price-elasticity-of-demand-for-tobacco-produc accessed 10th April 2013. . This is one of many different reports on these values.
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