SECTION 1

1 . MAIN ISSUE:
• Discussion of what actually happened

In the article “ Cigarette tax hike sparks panic buying “ (Ashley Hall, 2010) stated that the
government increased the tax on cigarette by an extra 25 per cent ,which created a massive panic
of buying goods before the price rise took effect at mid night by the tobacconists and smokers.

• Reasons for the tax raising

There are several reasons behind the raising of tax . One of the reasons is that the government
wanted to decrease the number of smokers which will result in less diseases caused by tobacco
consumption. Government thought that if price of the cigarette rises , most of the smokers are likely
to either give up smoking or smoke less . Another reason is government wanted to gain more money
from the regular smokers so that this money can be used in other sectors such as anti – smoking
campaign , hospitals etc.

• Possible impacts of the tax raised

There are many possibilities , one of them is that the number of smokers will decrease as govt
expected . Furthermore , young generation will not likely to smoke because they are more fascinated
by electronics , clothes ,accessories,etc . However , there is also a possibility of being a surplus of
tobacco in the future as demand will decrease due to rise in price, which leads to more supply and
less demand of the tobacco in the long run.

as it is an addiction there is also a possibility that the number of smokers will not change as much as
government assumed . people will continue to spend money on cigarettes rather than their other
needs .this can make more problems to the smokers as well as govt . this is because people will start
spending more money on tobacco than their family needs.

2. IMPACTS OF STAKEHOLDERS :
 • Discussion of the impacts towards all group
Government : As the government has put an extra high tax on cigarettes, they will receive more
money from the smokers .On the contrary, government is also spending $27.8 million on anti –
smoking campaign .Furthermore , after getting the tax they will invest more on health , education
and other sectors.

Smokers : The tax raising will greatly impact the smokers at all level .The govt expected that raising
the tax will decrease the number of smokers because they can not afford buying cigarette at high
price . Another thing is smokers will not give up smoking because of their addiction .

High income smokers : High income smokers will not be impacted much by this issue . Smokers
who have high income will neither give up smoking nor smoke less because they dont care about
the price .

Low income smokers : Low income smokers will be impacted for this issue . They are likely to
either give up smoking or smoke less . If they are not going to do that they will definitely spend less
money on their needs and more on tobacco .

Retailers : In the report it is clear that retailers are trying to stock their tobacco product and buy
more from the suppliers . this is because they will sell their product after the tax is implemented .
Hence , they will make a lot of profit .

General people ( non-smokers ) : General people is also going to be impacted for this decision of
govt . govt will invest the extra tax on something and general people will take advantage of that . for
example , govt has invested $50 million on healthcare . so definitely non-smokers are going to use it
because it wont be only for smokers .

• Main impacts
The group who will be the most impacted is smokers, this is because they are the one who buy it . In
addition, to some smokers it is quite impossible to think a day without tobacco .If they have low
income , they wont be able to buy it . So they are going to get depressed. Furthermore, many
smokers may give up smoking or smoke less due to high price .

3. ECONOMIC THEORIES :

• List and discusion of the theories

Opportunity cost - It is the highest valued alternative that we give up to obtain an item. In
this article ,the low income smokers are giving up their neccessities to smoke with a higher
price, as a result their oppontunity cost is their neccessary goods.
On the other hand, government is spending $27.8 million on an anti-smoking campaign so in this
case their giving up their money which could have spend on other sectors, so this leads to an
oppurtunity cost which is spending that amount of money on other sector.

Demand and supply - Law of demand states that as price rises quantity demanded will fall and
when price falls quantity demanded will rise. In this case, as the price of cigarettes go higher due to
increase in tax the overall quantity demanded will fall automatically. In the long run, the quantity
demanded will go more down as the price of cigarettes are assumed to be the same or more as the
government wants to decrease the number of smokers.

Law of supply states that the higher the price of a good, the greater is the
quantity supplied. Here , the government announced to implement 25% of tax by midnight,
therefore before midnight every retailer or supplier would buy as many stocks as they can which will
increase the supply of cigarettes. Moreover when the price increases , they will get more profit from
the smokers who will buy the cigarettes anyway. However in the long run there will a surplus of
cigarettes as the demand will fall.

Price elasticity of demand - The price elasticity of demand is a measure of how much demand
responds to a change in price. The price is elastic, this is because the non-addictive smokers will
either give up smoking or quit smoking as the law says the more responsive the demand is due to
change in price, the more it is price elastic. It is clear that most of them will quit smoking due to
increase in price of cigarettes, so it is price elastic .

However, it is price inelastic for addictive smokers as the responsiveness of demand is less changed
due to change in price. Even if the price is higher , the addictive smokers will not give up smoking
especially who belongs to high-income groups. Therefore, it does not matter what the price is but
they are going to continue smoking.

• The highlighted theories with evidence

Opportunity cost - opportunity cost for govt is that they could have spend the $27.8million in other
sectors.

Evidence:- Mr Rudd has also announced a crackdown on internet advertising of cigarettes and the
Government will spend $27.8 million on an anti-smoking campaign.( HALL,2010)

Demand and supply -

Demand- Overall demand is decreasing due to increase in 25% tax on cigarrettes expected by the
 government as well.

Evidence:- The Government estimates its increase in excise will cut total tobacco consumption by
about 6 per cent and cut the number of smokers by 87,000.(Hall,2010)

Supply- Supply will increase as before retailers tends to buy all the stock before the price toook
effect.

Evidence:- Supermarket chain Woolworths is reporting big demand for cigarettes before the excise
rise.

Shoppers who would normally buy just one packet are buying three or four and it is the same
story at tobacconists.(Hall, 2010)

Price elasticity of demand-

Price elastic for non-addictive smokers as they are more likely to quit smoking when the price goes
up as smoking is not neccessary for them.

Evidence:- "I tell you what, if they got to $20 a packet, which they're not far off now, I would
consider robbing a cigarette truck. At that price I wouldn't buy them, no," he said."stated by one
of the student (Hall,2010)."

price inelastic for addictive smokers as smoking is an addiction so they are not going to stop it even
if the price is much higher so they are not that responsive.

Evidence:- "I mean even if it goes up to $25 and you really want to smoke, you're going to buy it
anyway," said one student outside the Sydney Institute of TAFE. (Hall,2010)

SECTION 2

Report: Cheaper to buy than rent in

388 suburbs
Date
November 5, 2012

Chris Vedelago
More than meets the eye ... the report on the affordability of buying compared to renting has sparked disagreement. 

Falling property prices and interest rate cuts have made it cheaper to buy rather than
rent in 388 suburbs and towns around the country, a new report finds.
And if buyers are willing and able to spend an extra $50 a week in mortgage
repayments over rent, the number of suburbs where purchasing becomes a viable
option rises to 1419, according to RP Data's latest Buy vs. Rent report.
National research director Tim Lawless said the combination of steep price falls and
significantly lower interest rates was creating new opportunities for renters keen to buy
a property.
"For many buyers now may be a good time to either re-enter the market or buy their first
home,” he said.
In the group's last report in August, it was more affordable to buy rather than rent in only
238 suburbs.
"This result highlights the dramatic impact adjustments to mortgage rates can have on
housing affordability in the marketplace," Mr Lawless said.
But would-be buyers hoping to snap up a traditional house will be disappointed.
Apartments accounted for about 75 per cent of the 388 suburbs where it's cheaper to
buy than rent.
"Across the capital cities, it is typically apartment-style housing where renting can be
more expensive than paying a mortgage. The buy-in price tends to be lower compared
with weekly rents, providing a narrower gap between mortgage payments and rental
payments," the report found.
Queensland, with 147 suburbs, and NSW, with 88 suburbs, offered the most
opportunities for renters to become owners nationwide. South Australia (48 suburbs)
and Western Australia (44) were next, while Victoria (17) trailled a distant sixth behind
Tasmania (30).
RP Data said that the buy v rent equation was most favourable in regional areas,
accounting for nearly two-thirds of suburbs where it was cheaper to buy than rent.
In Sydney, Rushcutters Bay, The Rocks and Macquarie Fields were among the 41
suburbs revealed as affordable.
Melbourne, by comparison, put in a dismal showing of just three suburbs, including
Docklands, Carlton and Abbotsford.
Fortitude Valley, Oxley and the CBD made the list of 42 suburbs in Brisbane.
RP Data's survey compared median asking rents against mortgage repayments based
on a 5.9 per cent lending rate. It did not include additional buying or holding expenses
such as council rates, land tax, stamp duty, owners corporation fees or maintenance
costs.
The report has been criticised by industry operators who say the "theoretical"
calculations bear little relationship to experiences at the coalface.
Buyer's advocate Catherine Cashmore cites the findings for the inner Melbourne suburb
of Abbotsford, where the median value is said to be $360,868 for units and the rent is
$475 per week.
"Anyone who knows the area knows that price would only buy a one-bedroom unit,
while that kind of rent would get a small, two-bedroom house."
RP Data said there are 5386 suburbs across Australia, with the affordable buy v rent
suburbs accounting for only 7.2 per cent of the total.
Despite a recent rally in some capital cities, home values are still down 6 per cent
nationally from their 2010 peak.

1. MAIN ISSUE
• discussion of what actually happened

The report"CHEAPER TO BUY THAN RENT IN 388 SUBURBS"( vedelago,2012) states that it is
more affordable to buy houses than that of taking apartment or houses for rent in 388
suburbs all over Australia. It also gives information of reasons and impacts about buying
house vs renting.

• reason of the issue

The interest rates cuts have resulted in fall in price of houses whereas renting house is more
expensive than that. The report states that in 388 suburbs all over Australia, purchasing
house has becoming more cheap than renting apartments.The mortgage repayments are
affordable than rents and by paying them rather than taking apartment or houses on rent
will be much beneficial for people, thus they cn buy a house with much less money than
renting. As interest rates are much lower now the it is the best time to buy their own first
house as per this report(vedelago,2012).

• possible impacts

The price of houses are falling due to less interest rates on mortgage, as a result demand for
buying houses or property will increase, however it will happen in the long run as not
evryone has the ability to buy house or property with few days as they have very limited
source of income. On the other hand deman for house renting will decrease as the buyers
are getting much lower price of buying houses or property than that of taking house for
rent,however it also will happen in the long run it will take time to cut off the contract and
search for right property with in affordable price.