Elasticity Essay Example | Topics and Well Written Essays - 500 words - 2

Elasticity - Essay ExampleAn equilibrium point of quantity is obtained when the two make curves are drawn on a single graph. The inelastic demand for the veteran smoker clearly conforms to demand rule when the price for cigarettes goes up, demand falls and vice versa. (See fig (3) on scanned document)The government of all time increases the value added tax on cigarettes in order to reduce demand and also contain relative incidence of increased lung cancer due to smoking. Looking at fig (4) where the current equilibrium price is at three dollars and the quantity demanded is. When the price increases to six dollars, the supply curve work shifts upwards and moves to left to create a new supply curve. This shift and movement show how the markets, specifically suppliers, are reacting to the positive modification in price. The quantity demanded by the veteran smoker and the new smoker proportionately reduces. (See fig (5)).The consumer that plain changes there smoking behavior drastic ally is the new smoker. As per figure five, when the price rises to six dollars, the shift in supply curve form to causes the quantity of cigarettes demanded by the veteran smoker to reduce from as the supply curve moves upwards along the curve.On the other hand for the new smoker, the shift in supply curve form to causes the quantity of cigarettes demanded to reduce from. Since, , it is justifiable to say that the new smoker reduces his or a rate of consumption as a result of increase in cigarette price. ane can also say due to the fact that the veteran smoker is used to smoking a given number of cigarette packs, changing his or her norm due to price changes pass on comfortably be negligible.The burden of increased price, in most cases is transferred to the consumer in form of value added tax. Increased tax, will usually lead to increase in the cost of raw materials and in turn the producers and suppliers will expect to transfer this cost to consumers in form of value added