JEREZ_TOBACCO.docx - 1 TOBACCO ELASTICITY ANALYSIS IN SINGAPORE Microeconomics(ECON210 Framework Elasticity Jerez Amsyar bin Jisray The price of an

# JEREZ_TOBACCO.docx - 1 TOBACCO ELASTICITY ANALYSIS IN...

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1TOBACCO ELASTICITY ANALYSIS IN SINGAPOREMicroeconomics (ECON210)Framework: ElasticityJerez Amsyar bin JisrayThe price of an average cigarette box in Singapore today is approximately \$13. This is by far the highest amount paid for a box of cigarette in the South East Asia.In the image above (Retail price of 20-cigarette pack of most-sold brand, 2010) depicts that in 2010, Singapore has the highest price of cigarette in the whole of the Asian countries.
2TOBACCO ELASTICITY ANALYSIS IN SINGAPOREIn a survey conducted by Ministry of Health, it is found that in 2004, the population percentage of smokers was 12.6% and in 2010, the percentage shot up to 14.3% and the most recent study showed that in 2013, it was as high as 16% (Ministry of Health, 2013)Tax on tobacco products raised from \$293 to \$352 for every 1000 packets of cigarette imported (Singapore Customs, 2005). This had caused the price of 1 box of cigarette to reach sky high prices today. However, the number of smokers are still increasing as time goes by. Why is this so? In this research paper, I will analyse and explain about a few theories of microeconomics that relate to tobacco. Firstly, elasticity is the percentage change in quantity demanded over the percentage change in price. For instance, tobacco has an extremely inelastic demand curve. Insome countries, the prediction of the graph could be almost vertical and E<1.E > 1: perfectly elastic => When P, Q more , therefore Total Revenue DecreasesE = 0: perfectly inelasticE < 1: Very inelastic (for e.g. tobacco, salt, sugar, etc) => When P , Q less, therefore Total Revenue Increases
3The graph above shows E < 1, which is very inelastic. By visually inspecting the graph above, the percentage change in quantity demanded (from Q1 to Q2) is less than the percentage change in price (from P1 to P2). For instance, if the price of 1 box of cigarette goes up by approximately 10-15%, the quantity demanded would have decrease by approximately 2-3% thus still causing the total revenue to increase. This is the law of inelastic demand. This phenomenon is so because tobacco is highly addictive because of its

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