p.p1 change. Price inelastic goods are targets of high

p.p1 {margin: 0.0px 0.0px 0.0px 0.0px; font: 13.0px Times; color: #000000; -webkit-text-stroke: #000000} p.p2 {margin: 0.0px 0.0px 0.0px 0.0px; font: 13.0px Times; color: #000000; -webkit-text-stroke: #000000; min-height: 16.0px} span.s1 {font-kerning: none}

Tobacco is a demerit good with price inelastic demand which means that the increase in price causes to change slightly every year the tax is being implemented. We can see  this by looking at  the demand line which, regardless of the price changes, doesn’t move to the left.
This is proof that this tobacco imposed by Kevin Rudd has a negative impact on the producers and the consumers  who, because of the highly inelastic demand , still highly demand the good although the price increases. Also, new market equilibriums are created every year after the rise in price since moves in the supply line and the changes in price force producers and consumers, both dependent on each other to follow the price change. 

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Price inelastic goods are targets of high tax rates of leftist governments like in Australia, when there’s economic crisis or in this case a budget shortfall to collect revenue. On the other hand, there are disadvantages to producers and consumers.

However, the article states that an increase in the tax in 2010 had already dropped tobacco consumption by 11%.  This shows that outside factors which are not considered in ceteris paribus theory covered in the diagram before exist. 
There might be a large number of addicted consumers of tobacco who can be related to the idea of price inelastic demand. Yet, considering an example of youth smokers who can’t afford to start or to continue consuming tobacco we see that theory only applies to a certain extent for this particular article.

To evaluate the situation from an economic perspective, we have to look at the disadvantages and the advantages of the taxation in Australia.

One of the main disadvantage of the taxation of tobacco is a decrease in the income of the consumer which could lead to a decrease in living standard. By having to pay more and more money for tobacco products, the tobacco consumer can spend less money on other goods and services. Also, the tax of tobacco can be considered unequal and socially unjust, since the increase in tobacco price will not proportionally affect wealthier consumers  much as it will affect the majority of tobacco consumers with a lower income. Therefore Rudd’s leftist tax increase causes an increase in income inequality. And the reduction in tobacco consumption will be low in the the short run due to the price inelastic demand. 

Finally, the decrease in tobacco production will cause unemployment and might also lead to structural unemployment with workers lacking skills in other sectors. On the other hand, the high taxes on tobacco will generate high government revenues of 5 billion dollars, which can be used to pay back debts or can be invested in healthcare and education. Finally, the high prices of tobacco will reduce smoking in the long run, since elasticity increases over time and consumers will find alternative goods. In conclusion we can say that the economic disadvantages of tobacco taxation in Australia outweigh the advantages.