|ECO202: Economic Ideas and Models for Business|
(a) For each of the incident occurred in the cigarette market, explain whether the demand curve or the supply curve is affected and the effects on the equilibrium price and quantity in the cigarettes market.
Support your answers with suitable market diagrams. Your diagram should take into consideration the price elasticity of demand and supply for cigarettes.
(i) Price of electronic vaporisers (vapes) increases
(ii) Workers in the cigarettes industry have an increase in wages
(iii) Research concludes that smoking will cause cancer
(b) Due to the harmful effects of smoking, the government would like to discourage smoking.
Appraise the welfare effects of using price controls and taxes to discourage
the consumption of cigarettes. Explain your answers with suitable diagrams.