How does an increase in production costs and a decrease in smoking rates affect the cigarette market?

In the cigarette market, an increase in production costs typically results in a decrease in supply. This happens because higher production costs make it less profitable for producers to manufacture cigarettes, leading to a reduced quantity supplied at every price level. Therefore, the supply curve shifts to the left.

At the same time, a decrease in smoking rates indicates that fewer consumers are interested in purchasing cigarettes. This shift represents a decline in demand, meaning that at any given price, the quantity demanded by consumers is lower. Consequently, the demand curve also shifts to the left.

When both the supply curve and the demand curve shift to the left, the market experiences a decrease in the equilibrium quantity of cigarettes sold. The overall market adjustment reflects the combined effects of reduced supply due to higher production costs and reduced demand stemming from lower smoking rates. Hence, the choice indicating that both supply and demand curves shift to the left accurately describes the scenario presented.