Explain two demand and two supply factors that impact your product.
Model at least one of these factors and explain the impact of this factor.
Demand – Levels of disposable income, Tastes and Preferences.
The levels of disposable income is a fundamental factor that affects the demand of cigarettes as a
product in Australia. The level of disposable income a consumer determines their budget and
generally as a consumers disposable income increases, the more of a good they will purchase. As
Income decreases, demand decreases for normal goods and increases for inferior goods(substitute
good). In the cigarette market, studies by National library of Medicine in 2014 indicate that there is a
direct relationship between the disposable income available to consumers and the amount of
cigarettes they purchase and that when you move from the second income quintile to the lowest
income quintile, there is a drop of weekly household expenditure on cigarettes from $11.66 to $8.68.
This shows that this is especially common in lower income areas where the levels of disposable
income are lower so necessities of living must be met first before looking after an addiction. When
the income that a
The tastes and preferences of consumers is a key part of the
Supply – Number of other sellers, Cost of production
The Number of other sellers in a market is a non price factor affecting supply and is vital in the fact
that it determines the supply of cigarettes by a producer in a market.
The cost of production is another non price factor affecting supply of cigarettes as a product in
Australia. The cost of production of a firm can be thought of as the price of the resources that go into
the making of the products the firm sells such as the labour, capital and raw materials. Another way
to represent the cost of production of a firm is by using a supply curve that can be thought of as a
cost curve. An increase in cost of production for the firm would ultimately result in a decrease in
supply of the particular good that the firm produces. In this case, cigarettes can have a high cost of
production through
Increasing the price of tobacco products is the single most effective way to reduce consumption.
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A 10% increase in price has been estimated to reduce overall cigarette consumption by 3–5%
Research on cigarette consumption suggests that:
o both youth and young adults are two to three times more likely to respond to increases in
price than adults,
o lower income populations are more likely to increase quit attempts or smoke fewer
cigarettes in response to price increases, although desire to quit and successful cessation
may not be consistent across all racial/ethnic groups.
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When an effective advertising campaign is used to outline and highlight the negative effects of
smoking, smokers may see the problems associated and make the move to stop or lessen their
smoking as a result decreasing the number of cigarettes being bought by the consumers. Another
factor that goes hand in hand with this factor is government intervention. The ‘Competition and
Consumer (Tobacco) Information Standard 2011’ outlines that all tobacco products must have
warning statements, graphics, explanatory messages, and information messages all on the packaging.
They must cover 75% of the front of the packaging and 90% of the rear of the packaging.
Bibliography –
Australian Government Department of Health and Aged Care, (2017) Australian Competitor and
Consumer Commission. Available at: https://www.productsafety.gov.au/product-safety-laws/safetystandards-bans/mandatory-standards/tobacco-healthwarnings#:~:text=The%20Competition%20and%20Consumer%20(Tobacco,Tobacco%20Plain%20Pack
aging%20Regulations%202011. (Accessed 3rd May 2023)