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# I need my assignment 2 to be done with accurate answers

I need my assignment 2 to be done with accurate answers
Answered Same Day Apr 17, 2020

## Solution

Soma answered on Apr 19 2020
Assignment 2 consists of three problem questions (worth 10 marks each) based on text material. Text material which may be relevant to the questions may be drawn from any of text chapters 1-10.
Question 1
Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax charged (as at 1 January 2018) on a standard 20 packet of cigarettes. If the standard packet is sold for a price of \$30, how much is the before tax price?
Illustrate using the demand and supply model, the effects of a tax imposed on sellers of tobacco products. Explain in detail who pays the tax (buyers and/or sellers) and discuss the role the price elasticity of demand plays in determining the impact on prices and quantity of tobacco products sold. Be explicit about any assumptions made in developing predictions.

Australia has taken an aggressive move to reduce the consumption of tobacco and tobacco related products. Cu
ently Australia have imposed a 12.5% excise tax on tobacco related products every year for the next four years (2017-2020) Since growing number smoking related cancer and deaths are reported, the government has implemented one of the toughest plan on Cigarettes and other tobacco products. From September 2017, the average price of 20 acks of cigarettes have gone upto \$35,20. Since the next rise will be on September 2018, as on January 2018, the price will remain at \$35.20 per pack. They are approaching to a point where a pack of cigarettes will be costlier than a cartoon of beer. (McCann, 2017)
Government has generated \$10.69 billion in tobacco excise in 2016-2017. The increase in excise tax is expected to reduce the number of smokers to a significant extent. America evidence confirms that a rise in excise tax in 2010 and 2013 have doubled the price of cigarettes and reduce the countryâ€™s smoking population by 15% . (Bulman, 2016)After the four rounds of increase in smoking tax, the average cost of a pack off 20 cigarettes will increase as high as \$45 per pack by September 2020..(Hitchick, 2016)
Imposition of excise tax: demand- supply graph:
SS+t
Price
DD
SS
Tax
E1
P1
P0
E0
P2
Quantity demanded
Q0
Q1
The impact of imposition of excise tax can be shown with the help of fundamental model of demand -supply diagram. DD and SS are the demand for and supply of cigarettes before the imposition of tax. The market is in equili
ium at E0 producing Q0 amounts at a price of P0.
Let us assume a tax t is imposed on cigarettes. An excise tax is nothing but a rise in cost of production. It would shift the supply curve upwards from SS to SS+t. The market will reach to a new equili
ium at the intersection of original demand curve and the new supply curve with tax at point E1. The price has increased from P0 to P1 and the quantity has reduced from Q0 to Q1. Australian consumers are now worse off as they have to pay higher price per pack now. Due to higher price some consumers will find it unaffordable and quit smoking. This is the key economic rationale behind raising the excise tax on cigarettes.
Role of price elasticity of demand:
As far as the incidence of excise tax is concerned, price elasticity of demand plays a major role. Cigarettes is inelastic in nature because it is an addictive item. They are found to be less responsive to price changes. We can show the incidence of excise tax on cigarettes in Australian market with the help of above diagram. While consumers are paying P1 but producers are getting P2. The graph clearly shows that due to inelastic nature of demand, the excise tax is passed on to the consumers in terms of higher price. Since they are less responsive to price increase, consumers are paying greater share of the tax burden. (Tucker, 2016)
Imposition of tax is one of the most effective method to reduce the tobacco consumption and its associated adverse health impacts of smoking. Smoking related diseases are rising at a growing rate in Australia. It has become a wo
ying concern and priority policy implications among the policymakers, health experts and the government. The tax policy is thus imposed to curtail the tobacco consumption in the nation. The tobacco tax is considered as a win- win situation. This is because government can generate billions of revenues that can be used in other welfare projects in one hand and improve the public health in general by reducing the number of smokers in the country. The policy will also help to deter the entry of new smokers in the market by making cigarettes unaffordable to young adults. (Hitchick, 2016)
Question 2
a) Assume a perfectly competitive firmâ€™s total cost (TC) for different levels...
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