Cigarette smoking is injurious to health. How can the government reduce its consumption but only through the normal market forces. Explain the chain of effects of government's action.

Cigarette smoking is injurious to health. How can the government reduc

1.	Cigarette smoking is injurious to health. How can the government reduce its consumption but only through the normal market forces. Explain the chain of effects of government's action.
Answer» Solution :The government can increase the taxes on the cigarette industry. This leads to an increase in the cost of productionof cigarettes, HENCE leading to a DECREASE in supply as the PROFIT margin of the producers reduce, keeping other things constant. The decrease in supply is associated with a LEFTWARDS shift in the supply curve. As a result, the priceincreases SINCE there is less supply leading to a competition among buyers. As the price rises, the qunatity demanded falls but the quantity supplied increases. This effect will continue until the quantity demanded equals the quantity supplied. As a result of all this, the equilibrium quantity falls and the equilibrium price rises, which is what the government actually wanted.