Demand and supply in action - calls for a rise in tax on tobacco -
Sunday, March 07, 2010
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A great article today from Sky about suggestions that tax on tobacco should be increased by 5%. This could be used for revision of demand and supply ahead of the summer exams.
Even though demand is fairly inelastic for tobacco it is claimed that this increase in tax would cause 190,000 smokers to quit. As a demerit good consumers do not have perfect information about the affects on themselves and others. They are desensitised to price changes as to many tobacco is a necessity. Of course this substantial rise in tax revenue would benefit the government significantly especially at this time. I like to get my pupils to draw the demand and supply diagram (taking in to account the inelastic nature of the demand curve) and show how much the government would receive in tax revenue, they then work out which part the consumer pays and which part the producer pays. This can then lead in to the discussion as to whether this is fair or not.
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