1.

Before the 2011-2012 financial budget release, the retail market has already
expected an increase in tobacco duty.
2. Sellers expected the price would rise in future , therefore they decrease the
quantity of supply
3. They wait for the higher selling price in case they could earn more.
4. So , we notice that Before the imposed of Tobacco duty .
5. Excess demand is emerge in the retail market.
6. If the price doesn’t change, still, the quantity demand is more than the quantity
supply, excess demand occur.

7. When the government proposed to increase the tobacco duty by 41.5%,the supply
of tobacco decreases .(because the cost of production increase ) The price increases
and quantity transacted decreases
8. Since the smoker has a habit of smoking .They find it is difficult to reduce
consumption on tobaccos even its price has increased. So ,cigarettes are tend to be
more inelastic.
9.While the demand for cigarette is more inelastic than the supply of cigarette,
consumer will bare more tax burden.

10. Illegal cigarette & cigarette are substitutes

11.When the price of legal cigarette increases, its quantity demanded will decrease.
Consumer may choose illegal cigarette will therefore increase.

10 Illegal cigarette is cheaper than the legal one .

→ demand increase ,supply increase
‧More people prefer to but →more profit
→ price increase Quantity demand increase
‧ Although price of illegal cigarette increase it still cheaper than cigarette ,so more
peoples prefer to but illegal cigarette
11‧it lead to a increase the price of tobacco
‧Since price increase ,demand decrease ,but a greater % increase in the price of a pack
of cigarettes may only lead to a relatively smaller % decrease on the demand of
cigarettes
12 So, substitute for habit forming goods are difficult to find