Use a general equilibrium framework to discuss the possible incidence of a tax on cigarettes

The possible incidence of a tax on cigarettes according to the general equilibrium framework, the product analysis on demand and supply will move away from equilibrium instead of moving towards equilibrium. Equilibrium concept is the state when the level of demand equals the level of supply. Having a tax on cigarettes increases the supply and decreases demand. This is because the tax will increase the price of cigarettes hence increasing its supply level. An increase in price corresponds to a decrease in demand and vice versa. For the cigarette to be at equilibrium in the market, its demand and supply have to be equal or tend to move to the equilibrium level. Increasing price, tax, or supply tends to move the demand and supply curve further away from the equilibrium level; hence, the theory on general equilibrium does not adhere. If tax positively impacts the demand and supply of cigarettes, then the product moves towards equilibrium.

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