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GSBA503 Economic Analysis Assignments Solution
Effect of excise tax on cigarettes
Elasticity of demand refers to the responsiveness of demand to changes in the factors affecting it such as price. When demand is inelastic it means that a unit change in price has little or no effect on the quantity demanded. Its graph is vertical. Commodities that have inelastic demand include necessities and addictive’s such as cigarettes in this case (Surbhi, 2016).
Imposing excise tax on cigarettes has the effect of raising the price of cigarettes as the tax burden is passed on to the consumers. However given the inelastic demand and supply for cigarettes other than higher revenue for the government, there is no significant change in cigarette smoking as targeted by the move. This measure would only be effective if the demand for cigarettes were elastic
Graph: Exercise Tax on cigarettes
Price S + Tax
Q2 Q* Quantity
Supply shifts from S to S + Tax; tax revenue raised after the imposition of tax is area P2P1cb. Buyers pay a higher price P2, sellers receive a lower price P1. There is a deadweight loss bcd.
Cost versus benefits analysis
The only good thing that comes out of cigarette smoking for the government is the tax revenue that they collect from cigarette consumption. Cigarette smoking is laden with so much negative externalities such as health concerns for both the smokers and third parties and monetary ramifications. Smokers not only incur cigarette purchases costs but due to their exposure they incur higher health, mortgage and life insurances as well as lower pensions as some firms deduct some amount from the pay of smokers. Smokers have a lowered immunity thus are more likely to suffer premature death which not only affects the family but the economy as well since it is a loss of skilled manpower.
Age takes a toll on a person's health and more so a smoker’s health. Smokers are pre exposed to diseases such as lung cancer as well as lowering their immunity. Assuming it is not already too late, for the sake of a golden old age smoking cessation is paramount. Cigarettes do not come cheap so cutting of its consumption could lift a weight off from pension.
Policies adopted to reduce smoking
There has been a ban on cigarette smoking in public places such as 10m within children’s playground, 4m radius to public buildings pedestrian access points, spectator areas of recreational centers as well as in swimming complexes. It is also illegal to smoke in a car in the presence of a child of less than 16 years. Organizations have also brought this to their workplaces by prohibiting smoking in the workplace, (Davidson and Silva, 2017)
Tobacco smoking advertising prohibition. The ban on tobacco advertising is aimed at reducing the number of new smokers in the economy. It aims at deterring those who could have been attracted to attempt smoking from persuasive advertisement. It has no effect on the already existing smokers as they are already hooked and know where and what brand of cigarettes to use.
Legislation on plain packaging.
As advertising of tobacco products is laden with many restrictions, the industry has resorted to product branding to ensure that they stay on top of the game, to attract new clients as well as maintain their current customers. However, plain packaging makes the cigarettes look less appealing and have at least 75% graphic health warnings. This is aimed at discouraging people from taking up smoking, discouraging those who have quit from relapsing and encouraging those smoking to quit, (Davidson and Silva, 2017) a
Effectiveness of plain packaging of cigarettes on smoking rate.
Introduction of plain packaging of cigarettes has no discernible effect on reduction of smoking rates. If anything this would lead to the industry competing through price cuts to popularize their brands. The other factor is the notion of brand loyalty and the addictive nature of cigarettes. Whatever policy is adopted it cannot alleviate the addiction, (Davidson and Silva, 2017)
There are different types of unemployment namely structural, cyclical, frictional, underemployment as well as hidden unemployment. These together with their causes are briefly discussed below.
Structural unemployment: this results from structural changes in an economy the key factors being mobility and technological changes. A mismatch in the skills required for a given job whereby a worker is either unwilling or unable to learn the new skills relevant to the new job (occupational mobility) is one cause. It could also happen that there are openings but in a different geographical location from the worker is for one reason or another unable to shift (geographical mobility). Lastly and the worst of all is the technology factor. With the adoption of new and often better technology fewer and fewer workers are required as more of the work is disbursed to machines, (Mondal, 2018)
Frictional unemployment: this form of unemployment occurs between jobs when in the period before workers secure new jobs upon leaving or losing their previous positions. The period of unemployment depends on the work skills and education of the worker, labor market needs, as well as factors such as unemployment benefits and labor laws in place. If there's a mismatch in the skills needed and one’s skills then this period of unemployment may prevail for some time.
Cyclic unemployment: this form of unemployment arises from business or economic cycles. During a recession there is a generally low demand for goods and services in the economy. Given that the demand for labor in an economy is derived from the demand of goods and services, it then follows that there will be low demand for labor and consequently unemployment, (Goodbadecon.com, 2018)
Hidden unemployment: this refers to the jobless working class but who are not officially recognized in unemployment records. It also encompasses the working class whose productivity is very negligible tending to zero and thus does not affect aggregate output in the economy. Usually encountered in developing countries with large populations, (Staff, 2018)
Underemployment: this form of unemployment results when highly skilled workers are designated to low skilled and low paying jobs. Also it encompasses the part-time workers if they desire to obtain full-time jobs and actually have the capacity to fully conduct the duties required of full time work, (Staff, 2018)
Factors causing changes in the supply of 15-24 years old workers
Education attainment: an increase in educational attainment among the youth means a lower supply of workers in this age group. This youth is motivated to further their studies through government efforts in terms of funding. If the labour marketing strategy is flooded such that the probability of them securing jobs are minimal, this could motivate them to pursue studies. As a result there will be a decrease in the available labor force shifting the labor supply curve to the left.
Availability of younger migrants with student visas increases the supply of the labor force when their studies are in limbo and they are thus able to participate in the labor market. This shifts the labor supply curve to the right, (Dhillon and Cassidy, 2018)
Graph: Shift in labor supply
Q2 Q Q1 Labour Force
Factors causing increase in demand for 15-24 years old workers
The service sector is growing every passing day and is coupled with quite irregular hours which favor the younger workers as their schedules are more flexible than their older counterparts. Technological changes could be another contributing factor to this end as they are quick to learn and adapt to new ways of doing things.
Graph: Shift in labor demand
Q0 Q1 Labour Force
Factors driving young workers to part time or casual employment
The major reason behind this occurrence is the desire of this youth to combine studies and working. The desire of the younger people to further their education may not be purely for academic reasons but rather because of declining full time employment positions for this youth.
Changing economic structures: the economy is increasingly becoming more service oriented. Most service oriented areas such as fitness centers may find it sensible to hire people on an hourly basis considering they are busiest in the mornings, evenings and weekends. In such sectors the majority of employment opportunities are part time and they have a tendency of hiring younger people.
Technological advancement is yet another factor that has contributed to the prevalence of part time employment on the younger workforce as it lowers the demand of the human workforce thus making it difficult to secure full time jobs, (Dhillon and Cassidy, 2018)
Australian youth unemployment and underemployment rate
4 Current state of affairs
The current unemployment rate of the young people despite being better than the 2014 peak is still considerably high standing at 12.5%. Generally, the younger generation tend to cluster in industries that are cyclical and/or seasonal in nature. As a result they easily find themselves jobless during downturns. Given their less experience and lower skills employers find it easier to let them go when circumstances call for it than their older counterparts.
Youth unemployment in Australia and New Zealand comparison.
Unemployment is high in both countries but New Zealand’s rate is higher. Most male youths in Australia are unemployed compared to Australia. The world youth unemployment has risen since the 2008 global recession. The reason for rate differentials is the lack of development on sectors that may lead to increased youth unemployment.
1. Davidson, S. and Silva, A. (2017). Did Recent Tobacco Reforms Change the Cigarette Market? Wiley Online Library.
2. Dhillon, z. and Cassidy, n. (2018).Labour Market Outcomes for Younger People. [Online] Rba.gov.au. Available at: https://www.rba.gov.au/publications/bulletin/2018/jun/pdf/labour-market-outcomes-for-younger-people.pdf [Accessed 27 Sep. 2018].
3. Goodbadecon.com. (2018). Types and causes of unemployment. [Online] Available at: http://goodbadecon.com/uploads/3/1/1/6/3116093/ch_51_-_new_order_-_types_and_causes_of_unempl_-_2.3_-_short_version.pdf [Accessed 27 Sep. 2018].
4. Mondal, p. (2018).Unemployment: Status, Types, Causes and Effects of Unemployment. [Online] You’re Article Library. Available at: http://www.yourarticlelibrary.com/unemployment/unemployment-status-types-causes-and-effects-of-unemployment/9900 [Accessed 27 Sep. 2018].
5. Surbhi, S. (2016). Difference between Elastic and Inelastic Demand (with Comparison Chart) - Key Difference. [Online] Key Differences
6. Staff, I. (2018). Disguised Unemployment Economics. [Online] Investopedia. Available at: https://www.investopedia.com/terms/d/disguised-unemployment.asp [Accessed 27 Sep. 2018].
7. Victoria, q. (2011). Plain packaging of tobacco products: a review of the evidence. [Online] Cancer.org.au. Available at: https://www.cancer.org.au/content/pdf/CancerControlPolicy/PositionStatements/TCUCCVBkgrndResrchPlainPak270511ReEnd_FINAL_May27.pdf [Accessed 28 Sep. 2018].