MASTER OF MANAGEMENT (MOM)

MASTER OF MANAGEMENT

ECONOMICS FOR MANAGERS

BEM5013

INDIVIDUAL ASSIGNMENT

<<The Economics of Smoking: A Case Study

in Indonesia>>

NAME: CHONG YEW CHUAN

MATRIC NO: KLCP109044

LECTURER: PROF. DR. SYED OMAR

SYED AGIL
 MASTER OF MANAGEMENT (MOM)

Questions:

1. Who are the main actors in this case study?

The main actors in this case study are the Indonesian
government and the smoking Indonesian public.

2. What are the problems in this case study?

The problems highlighted in this case study are about the
smoking habits of the
Indonesian and its damaging effects to the economy of the
country as a whole and the lack of efforts undertaken by the
Indonesian Government to curb smoking habit among the
Indonesians.

Amongst the problems referred are smoking related diseases

such as
cardiovascular disease, cancers, chronic respiratory diseases and
diseases of the
digestive tract. lt was reported that about 400,000 Indonesians
die annually from
smoking-related diseases and another 25,000 death due to
passive smoking.
Study revealed that the Government spent about Rp105.4 trillion
to treat
smokers in 2005, which was many fold when compared to the
revenue earned
from tobacco taxation.

Smoking also relates to social problems whereby family nutrition

is sacrificed for the sake of cigarettes. ln addition, the smokers'
dies prematurely due to smoking-related diseases and their
family are trapped further into poverty. Study also shows that the
poor lndonesians are willing to spend on cigarettes rather than
spending for their family needs such as food, dairy products,
education and healthcare. Additionally, savings from smoking can
be allocated for reproductive health costs and help prevent
maternal mortality and unwanted pregnancy.
 MASTER OF MANAGEMENT (MOM)
3. What are the economic concepts, principles and theories
that you can find in this case study?

The economics concept, principles and theories highlighted in the

case study are as follows:

1. Demand shifters
a. Income
b. consumer tastes
c. advertisement
d. Supply shifters
2. Supply shifters
a. number of firms that enters the market
b. producer expectations
c. excise tax
d. technology or government regulations/rules

3. Own price elasticity of demand

4. Marginal benefits versus marginal costs approach

4. What are the important information in the case study

relating to economics if you are required to explain the
economics of smoking?

The imporlant information in the case study is related to Elasticity

of Demand. It was stated that 10% increase in cigarette price
reduced the number of smokers by 17%, amongst the poorest.

= 17%/10%
= 1.7

E>1
Hence, it is elastic. The increase in cigarette price had greater
impact amongst the poor based on the above study.

However for smokers from the rich families, a 10% increase in

cigarette price reduced the number of smokers by only 4%.
 MASTER OF MANAGEMENT (MOM)

= 4%/10%
= 0.4

E<1
Therefore, the impact of price increase to the smokers from the
rich families was
not significant, hence, it is inelastic to the rich.
5. How do you analyze smoking through economic thinking?

The study of economics revolves around how limited/scarce

resources are utilized to achieve unlimited wants. Though the
Government is generating revenue from tobacco taxation but the
revenue is not sufficient to cover the cost of treating smoking-
related diseases and addressing the resultant social problems,
hence, the cost outweighs the benefits. The Indonesian
government has to undertake greater studies and be serious in
implementing the deterrent tax structure to produce a benefit
outcome for tobacco. ln addition, the Government should
encourage the land owner to cultivate other agricultural products
as a substitute to tobacco such as palm oil by provided further
incentive to the farmers such as subsidy.

6. What do you think the government of Indonesia should do

to reduce the smoking habits of especially among the
poor?

In order to reduce smoking among the poor, the Indonesian

government can
consider taking the following actions:

a. Undertake healthcare educational campaign and highlight the

health consequence of smoking;

b. implement tax structure that are deterrent;

c. Ban all tobacco related advertisements, be it in print or visual;

 MASTER OF MANAGEMENT (MOM)

d. Eradicate poverty by increasing the living standard of the poor;

e. Create a system where smoking can be expensive and costly;

f. Government should be serious in its cause then compromising

with the lobby group.

7. If you are required to improve the case study, what do

you think can be done further?

a. The demographic representation of the smokers will help

identify the actual cause of smoking in greater detail among
the rich and the poor;
b. What are the various efforts undertaken by the Government
so far to eradicate poverty and improve the living standard
of the poor as this will create a greater awareness for the
need of good health;

c. What action can be taken to cause an impact to the tobacco

producers to discourage them from producing cheap
tobacco.