londoncricket
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Hi all,

I was revising for my AS Economics Theme 1 (Microeconomics) exam and I came across this question and I did not understand why the answer is A?

Question:
Which of the following would you expect to shift the demand curve for tobacco to the left?

A. Medical research which links alcohol with heart disease.
B. An increase in indirect tax on alcohol.
C. An increase in real income.

I thought that the answer would be B, because we are pushed to assume that alcohol and tobacco are complementary goods?

Thank you!
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keynes24
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(Original post by londoncricket)
Hi all,

I was revising for my AS Economics Theme 1 (Microeconomics) exam and I came across this question and I did not understand why the answer is A?

Question:
Which of the following would you expect to shift the demand curve for tobacco to the left?

A. Medical research which links alcohol with heart disease.
B. An increase in indirect tax on alcohol.
C. An increase in real income.

I thought that the answer would be B, because we are pushed to assume that alcohol and tobacco are complementary goods?

Thank you!
Is this a past paper question? You sure is not demand for alcohol?
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londoncricket
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(Original post by keynes24)
Is this a past paper question? You sure is not demand for alcohol?
Thanks for the reply!

Yes I thought it was weird too. I copied and pasted it from a worksheet provided by my school as revision for exams.
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keynes24
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(Original post by londoncricket)
Thanks for the reply!

Yes I thought it was weird too. I copied and pasted it from a worksheet provided by my school as revision for exams.
I think it is a typo
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londoncricket
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(Original post by keynes24)
I think it is a typo
Ah okay. That is plausible.

Thank you!
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Lemauricien
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Could be A, it's not explicit but they could be complementary goods
The only problem is that tobacco is a habit forming good so probs perfectly inelastic meaning any changes to anything else have no impact
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keynes24
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(Original post by Lemauricien)
Could be A, it's not explicit but they could be complementary goods
The only problem is that tobacco is a habit forming good so probs perfectly inelastic meaning any changes to anything else have no impact
Perfectly inelastic demand works in theory, it may be inelastic in demand but it can't be perfectly inelastic in demand. The multiple choice questions has to be worded clearly without the need to make assumptions and based on the information provided. I still think it is not worried correctly and since it seems it was made up by the college and not sample assessment material very likely.
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Varun127
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It should be A, as an taxation shifts supply to the left, and a rise in real incomes shifts demand to the right.
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The Financier
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(Original post by londoncricket)
Hi all,

I was revising for my AS Economics Theme 1 (Microeconomics) exam and I came across this question and I did not understand why the answer is A?

Question:
Which of the following would you expect to shift the demand curve for tobacco to the left?

A. Medical research which links alcohol with heart disease.
B. An increase in indirect tax on alcohol.
C. An increase in real income.

I thought that the answer would be B, because we are pushed to assume that alcohol and tobacco are complementary goods?

Thank you!
Edit: Ok, working on the assumption that the question is meant to be asking about Alcohol rather than Tobacco,

I'd argue it's A as less people will want to drink if people are more aware of the damage that drinking would cause. That causes a leftward shift of the demand curve.

The income elasticity of Alcohol is subjective so I don't think you could reliably say C. Fine wines will have income elastic demand so demand would shift right as incomes rise whilst beer is more likely to be an inferior good which shifts demand left. As the question is non-specific, I don't think you could argue that C applies in all scenarios.

An increase in indirect tax shifts the supply curve, not the demand curve, so it won't be B.
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JamesGibson
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The answer is A.

The medical research causes a change in consumer preferences against alcohol.

As we know, if any factor changes other than price - we see a shift in demand (rather than a movement along the demand curve).

People are going to buy less at any given price if they know the alcohol will cause heart disease, so we see a leftward shift in demand.
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Luiswright31
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It's not A, it's a typo.
The question clearly says which of these will shift the demand for tobacco to the left, not alcohol.
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Luiswright31
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The only logical response to that question would be that, there is some evidence towards smoking being an inferior good, and therefore it's C. However in my opinion, it's not a very good question, as none of the answers are 100% right, and you could definitely argue at whether or not smoking is inferior.

EDIT: It's definitely C. When you think about it logically, smoking is most likely an inferior good, and therefore any increase in real incomes should cause demand to fall.
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JamesGibson
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(Original post by Luiswright31)
It's not A, it's a typo.
The question clearly says which of these will shift the demand for tobacco to the left, not alcohol.
Yeah I'm assuming it meant to say alcohol instead of tobacco in the question.

Otherwise the question doesn't make any sense. There isn't really an obvious relationship between alcohol and tobacco, at least not one you'd expected to know in the exam.
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Luiswright31
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(Original post by JamesGibson)
Yeah I'm assuming it meant to say alcohol instead of tobacco in the question.

Otherwise the question doesn't make any sense. There isn't really an obvious relationship between alcohol and tobacco, at least not one you'd expected to know in the exam.
I'm fairly certain it's C, as, whilst being arguable, there is some evidence to suggest that tobacco is an inferior good.
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The Financier
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(Original post by Luiswright31)
I'm fairly certain it's C, as, whilst being arguable, there is some evidence to suggest that tobacco is an inferior good.
I'm pretty sure the question isn't actually asking about tobacco as the first two answers are to do with alcohol and with B in particular, has no relevance to demand curve shifts of Tobacco. You could argue that A in this context could be explained by some link between alcohol and tobacco but that really isn't something you would necessarily know in the exam and there's no information on cross elasticity (and hence whether they're substitutes/complements) because you would only be talking about the effect of a change in demand for Alcohol on Tobacco rather than the effect of a price change in Alcohol on Tobacco.

If it was to do with alcohol, then the income elasticity of "alcohol" can be highly varied given that some alcohol are luxury goods whose demand would shift rightwards with more income (champagne, red/white wine etc.) and some are inferior goods whose demand would shift leftwards with more income (beer).
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Luiswright31
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(Original post by The Financier)
I'm pretty sure the question isn't actually asking about tobacco as the first two answers are to do with alcohol and with B in particular, has no relevance to demand curve shifts of Tobacco. You could argue that A in this context could be explained by some link between alcohol and tobacco but that really isn't something you would necessarily know in the exam and there's no information on cross elasticity (and hence whether they're substitutes/complements) because you would only be talking about the effect of a change in demand for Alcohol on Tobacco rather than the effect of a price change in Alcohol on Tobacco.

If it was to do with alcohol, then the income elasticity of "alcohol" can be highly varied given that some alcohol are luxury goods whose demand would shift rightwards with more income (champagne, red/white wine etc.) and some are inferior goods whose demand would shift leftwards with more income (beer).
If the question is written wrong then you are most certainly right. Which is most likely the case as the whole question does seem odd.
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