Cigarette Excise Case Study

This article is about the effect in cigarette excise to tobacco industry. British American Tobacco Malaysia (BAT Malaysia) announced that the price of its cigarettes had risen as government had increase the cigarette excise by more than 30 percent. Cigarette excise is an inland tax on the sales of cigarette inside a country. In the announcement, BAT stated that it is a big let-down and shock on the unprecedented increment in the cigarette excise. The brands under BAT Malaysia are Dunhill, Lucky Strike, Pall Mall, Benson and Hedges, Kent, Peter Stuyvesant and Shuang Xi. The price of cigarettes brands under BAT Malaysia are set to go up as high as RM18. Dunhill had been priced at RM13.80 per pack previously and it will goes up to RM17 per pack

One of the key element to determine the elasticity of demand is availability of close substitutes. If a product has more substitutes available, it will have more elastic demand. If a product have fewer substitutes available, it will have less elastic demand. Therefore, the number of substitutes for cigarettes will affect the price elasticity of demand curve. For example, smokers can purchase electronic cigarette to replace cigarette if they cannot afford the price of cigarette. As cigarette does not have much close substitutes, its demand is price inelastic. Thus, increasing price of cigarette will only cause a small fall in demand. In order to meet the equilibrium, supply curve shift to the left from S1 to S2. The new equilibrium will form, which is point

Cigarette excise tax is a proven strategy to reduce smoking, especially among teenagers and low-income people. Introducing higher cigarette excise tax is a win-win policy as, it not only increases government revenue, but it also saves lives. Overall, the increased cigarette excise tax will be beneficial in terms of both the health of the general public and the economy as a whole.

In conclusion, the concept of price floor should be implement by the government. Price floor is a legally determined minimum price that sellers may receive. Every sellers cannot sell cigarette below the price of the price floor when the price floor of cigarette is set because it is illegal. Once price floor of cigarette is implemented by the government, the price of cigarettes will increase and the quantity demanded for it will decrease as there will be some smokers that cannot afford to purchase cigarettes as much as they bought previously. Black market is still exist although government is taking note carefully in the pricing of cigarettes. In year 2010 and 2011, the rate of cigarettes sold on the black market in Malaysia was estimated to be at the rate of 36.6 percent of all cigarettes sold. Thus, government must take action in order to control the market. Last but not the least, smoking harm human’s health and having so much disadvantage. Therefore, government should control