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April 23, 2014

Homework Help: MICROECONOMICS

Posted by Titir on Tuesday, June 19, 2012 at 10:58am.

In order to reduce cigarette consumption, govt initiates anti-smoking media campaigns. At the same time it provides price support program for tobacco farmers, pushing price of tobacco above equilibrium. with supply demand framework explain the effect on cigarette consumption.
please say whether u think my answer is right: the impact of media campaign will be on demand for cigarettes. influenced by media campaigns, people will demand less quantity of cigarettes at each price, hence demand curve for cigarettes shifts leftward. again a price support program for tobacco farmers will act as a binding constraint on the market for tobaccos. it will raise quantity of tobacco supplied and lower the quantity of tobacco demanded. therefore output of tobacco will fall. since tobacco is input in making cigarettes,due to a fall in output of tobacco, producers will sell less cigarettes at each price. supply curve of cigarettes shifts leftward. in the market for cigarettes, demand curve shifts leftwards and so does supply curve. therefore equilibrium quantity of cigarettes will fall.

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