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Question 1 Excise tax rates on tobacco and tobacco products increase in March and September based...

Question 1

Excise tax rates on tobacco and tobacco products increase in March and September based on average weekly ordinary time earnings. Perform a web-search to determine the amount of excise tax charged (as at 1 January 2018) on a standard 20 packet of cigarettes. If the standard packet is sold for a price of $30, how much is the before tax price?

Illustrate using the demand and supply model, the effects of a tax imposed on sellers of tobacco products. Explain in detail who pays the tax (buyers and/or sellers) and discuss the role the price elasticity of demand plays in determining the impact on prices and quantity of tobacco products sold. Be explicit about any assumptions made in developing predictions.

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Answer #1

burden of Imposition of excise tax on sellers of tobacco shall be distributed according to the elasticities of demand and supply prevailing in the market.

If demand is inelastic and supply elastic, then more burden shall be on buyer of tobacco. Inelatic demand implies that buyers shall not be able to change the demand substantially if price is increased.

On other side, if demand is elastic and supply inelastic, more burden of excise tax on tobacco shall be bear by the seller of tobacco.

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