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Using supply and demand analysis, describe the effect of each of the following events on the market for cigarettes
Using supply and demand analysis, describe the effect of each of the following events on the market for cigarettes. Your description should include which curve shifts, supply or demand, which way the curve shifts, left or right, if the equilibrium price increases or decreases and if the equilibrium quantity increases or decreases.
a. The price of cigars decreases
b. The price of e-cigarettes increases.
c. A fertilizer that increases the yield per acre of tobacco is used.
d. There is a substantial increase in the price of matches and lighter fluid.
e. The legal age to buy cigarettes is lowered to 12.
Expert Solution
a. The price of cigars decreasing causes a decrease in the demand for cigarettes because its a substitute product. This shifts demand to the left, decreasing price and decreasing output.
b. The price of e-cigarettes increasing causes a increase in the demand for cigarettes because its a substitute product. This shifts demand to the right, increasing price and increasing output.
c. A fertilizer that increases the yield of tobacco per acre decreases the cost of production which causes an increase in the supply. This shifts the supply curve to the right, decreasing price and increasing output.
d. An increase in the price of matches and lighters causes a decrease in the demand for cigarettes because they are complimentary products. The demand curve shifts to the left, decreasing the price and decreasing the output
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