In Indonesia, the culture that has embedded the nation is the intensive consumption of
tobacco as it is traditionally spread through the country. The analysis of the study is to offer a focus
on the impacts of the Indonesian Government Policy and how it has affected the demand for
cigarettes. In this regard, the paper will provide an introduction to the research. Secondly, the study
will provide inferences on the nature of tobacco and the type of product it can be categorized too,
thirdly, to understand the effects on the demand correctly it would be rational to offer insight on the
law of application and the price elasticity of the good. Additionally, the paper will provide a critical
analysis of the law and how it impacts the market in Indonesia. Finally, the research will offer a
recommendation on a possible strategy and finally offer an overall conclusion for the study.
The government plays an active role in policy making. The systems are made to improve the
welfare of the citizens. However, it is important to identify that the policy has both the short term
and the long term effects in the economy. The economists rationally internalize the externality of
the policies so that the externality, in the long run, maximizes the welfare of the citizens. In this
regard, the analysis of the paper will focus on policy making and the aftermath effects. The
central area of concentration is the Indonesian Government’s policy on Tobacco and how it
will influence the demand for Cigarettes. The analysis of the influence will aid to analyze the
Extended Essay
application of different microeconomic theories like the theory of demand and supply and the
principles of supply and demand.
Nature of Tobacco as a Good
Tobacco lies under different categories of products depending on the nature of the
consumption by the user. Economists have continually argued on the nature of the good. To offer
rational inferences on the influence of the Indonesian policy, it would be highly significant to first
identify the nature of Tobacco as good(Kawanishi, 2016). The fundamental foundation of the
economic theory is that an increase in the price of Tobacco would either increase or reduce the
demand for the products of Tobacco.
On general context, tobacco is known as a demerit good. The attribute to the nature of the
good is as a result of the negative externality the good has on the consumers. Commonly, tobacco
consumption is closely linked to health hazards like cancer, kidney problem, breathing problems
among other health risks. It is the reason different policies have established a high tax rate system
on the goods to discourage their consumption. However, the challenge is that the policy has little
impact on the expected output. Tobacco is considered to be one of the core sources of government
revenue.
The focus on the nature of Tobacco products will be more anchored on the frequency of
consumption and the different age groups that consume tobacco. In the occasional nature of
smoking, the tobacco products are exemptions to the law of demand and supply. It, therefore,
implies an increase in the price of good does not influence the demand for the good. It is mainly
familiar to the young smokers who mostly smoke occasionally when they go out or when they are
hanging with friends(Setio, 2010).
Example By savvyessaywriters.com
For the addicts and the regular smokers, the good would be considered as an inferior good.
The increase in the price of the product results to decline in demand for the good due to the price
effect. In this regard, it is rational to consider that the tobacco products fall under different
categories of goods. It is significant to identify that there are no close substitutes for tobacco and
therefore, the element has a significant influence on the forces of demand and supply of the
commodity.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *