...Q 1. Cigarettes are often cited in economics texts as an example of a particular type of market failure. Identify that market failure, and illustrate the failure using an appropriate diagram. Ans. Cigarettes represents a market failure of externatilities. They are sited as negative externality as they affect the wellbeing of the bystander and the person neither pays nor receives any compensation for that negative effect. A smoker enjoys the puff of the smoke and the bystander inhales the fumes of the cigarette and indirectly suffers health hazards. And if the bystander fells sick because of the smoke as one reason he will not be compensated by the smoker for the ill- health and therefore, smoking has a negative impact on a person who has not paid for the cigarette and still has suffered a loss. This reduces the MSB by the extent of the negative effect on bystander; hence the socially efficient smoking is less than the free market level of smoking. A Negative Externality in Consumption can be analyzed by a decrease in the marginal social benefit of consumption below the marginal benefit to consumers. (If a smoker benefits $8.20 and non-smokers lose $4.00, then society as a whole benefits $4.20) S = MC D = MB 0 5,000 10,000 15,000 E Price of a pack of cigarettes Quantity of cigarettes $14 12 10 8 6 4 2 MSB MSB curve shifts downward by the amount of the externality --- the marginal external effect Q 2. Many economists believe that a Pigovian tax...
Words: 1034 - Pages: 5
...Cigarette Taxes: Do They Have An Effect On Reducing The Demand For Them? By Lenora Walker Virginia College June 02, 2014 Cigarette Taxes: Do They Have an Effect on Reducing the Demand for Them? Cigarette taxes may stop some from smoking but in the long run people will find a way to keep smoking. There are some that are quitting for health reasons. In 2005 there was a decline between 1.5 percent and 2.5 percent. If cigarette taxes are earmarked then it can cause problems in funding education, health services, or other programs that will most likely grow over time. Policymakers and advocates should consider if a cigarette tax increase is necessary. In 2009 President Obama asked for a budget request to increase cigarette taxes from $1.01 per pack to $1.95 per pack. In 2015 the Federal tobacco tax would be indexed for inflation. Researchers have found that by increasing the real cigarette price by 10 percent would reduce the number of young-adults smokers by 3.5 percent and the number of kids by 6 or 7 percent. The calls to the national quit line have increased by 30% in the past 12 months after they compared it in the 12 months before. Increasing the cigarette taxes has had an effect on non-smokers by reducing the second hand exposure. Studies have showed that people of the low socioeconomics look at price more than the general population. With a regressive tax the poor is the one who pays the higher percentage through their income taxes. The economic analysis has determined...
Words: 1114 - Pages: 5
...Abstract: “Raising taxes is one of our strongest weapons to fight out tobacco,” said Arun Thapa, Acting WHO Representative to India. Hiking tobacco taxes by 320% between 1996 and 2013 helped the US reduce its per capita annual consumption of cigarettes from 1820 to 893 cigarettes, and cut the number of adults who smoke by about a third. In India, central-excise duty has increased 1606% on the shortest non-filter cigarettes available and 198% on the shortest filter cigarettes since 1996. Taxes constitute about 60% of the price of a best-selling pack of 20 cigarettes, against about 43% in the US. But India was not able to reduce its capita annual consumption of cigarettes in the same proportion. Cigarette smokers in India increased from 25 million to 46.4 million over 14 years (1996 to 2010), and per capita annual consumption of cigarettes declined marginally, from 101 to 96 cigarettes over the same period. With some assumptions, it can be shown that the tax on bidis can be increased to Rs. 100 per 1000 sticks compared with the current Rs. 14 and the tax on an average cigarette can be increased to Rs. 3.5 per stick without any fear of losing revenue. The government though has been taking rigorous initiatives to try and reduce the consumption of tobacco products it has not been able to achieve the results which it wanted to have. There have been many reasons for this to happen and we will look into it in this report. Introduction:- In India, tobacco consumption...
Words: 1784 - Pages: 8
...According to the table 3.1, there is a minimal increase in the excise duty of unfiltered cigarettes in the years 2006-07 and 2007-08 and large increase can be seen in the year 2008-09. In the case of filtered cigarette, there has been a minimal increase or rather we can say that excise duty has been constant for 2007-08 and 2008-09. In the case of bidis, the excise duty is constant for 2006-07 and 2007-08 while decreases in 2008-09. So we can make out from this given table that by increasing the cost of unfiltered cigarette the government wants people to shift from unfiltered to filtered cigarette which will eventually lead to betterment of public health. Secondly, it also helps the Government in the generation of revenue. According to table 3.5, there has been an increase in consumption of bidis and less in cigarettes from 2000-01 to 2005-06. While due to the increase in price of bidis in the year 2006-07, the cigarette consumption of brands likeGold flake, Navy cut, Gold flake small and Wills flake has increased. As the price is increased there would be less consumption of cigarette while on the other side the revenue generated would still be the same or slightly less because of increase in price therefore net sales will be the same without any significant loss. So in order to maintain the revenue generated the quantity of cigarette manufactured will be reduced i,e less number of cigarette will be sold at a higher price Q2: Based on the price elasticity estimates in table...
Words: 1466 - Pages: 6
...Cigarette tax measure may have unintended consequences | | | | Matt Evans On the surface, this November's Ballot Measure 44 is simplicity itself. The measure will increase taxes on cigarettes by 30 cents per pack, as well as on other tobacco products, and the revenue raised will be dedicated to the Oregon Health Plan and tobacco use reduction programs. What could be more straightforward? However, the measure raises a host of interesting issues that voters should weigh prior to casting their votes. Most important, of course, is the core of the measure, its purpose: to raise money for the Oregon Health Plan, ostensibly to offset costs the plan incurs from smoking-related illnesses. State revenue estimators understand that anytime you raise the tax on something, you will get less of it. This is certainly true in the case of Ballot Measure 44 and its effect on cigarette smoking. In fact, the State Legislative Revenue Office estimates that cigarette use will decline about 4.5 percent due to the increased taxation. In a series of four steps over the past 17 years, Oregon has raised the tax on cigarettes from 9 cents per pack to the current 38 cents. Each of these tax increases represented a smaller amount per pack than Measure 44's 30 cents. In every instance, tobacco use has fallen by more than the current projection of 4.5 percent. In fact, tobacco use fell an average of almost 9 percent--twice the state's estimate--after those four cigarette tax increases. The...
Words: 2992 - Pages: 12
...Taxation On Cigarette Smoking Economics Essay In the following paper you will be able to see who is likely to be more affected by tax increases on cigarettes: all adults or young adults. You will also be able to see how we can reduce the effects of cancer by reducing the cost of other tobacco products. You will also see long term elasticity of demand for cigarette smoking and what does this mean for the likely impact of taxes on long-term cigarette use and do you think taxing can be effective in decreasing the use of alcohol? Explain your answer using economic theory The people that are mostly affected by the increases in tax on cigarettes according to Frank J. Chaloupka would be the youth and Adults. The single most consistent finding of many econometric studies of the issue of cigarettes price being increased would lead to a drop in smoking. The ten percent increase in cigarettes price would overall drop the consumption of cigarettes sales by fiver percent. (Chaloupka, p. 3) By increasing the price in cigarettes it would most likely affect the youth and young adults do to the price increase. According to Study in 1996 by Chaloupka and Grossman they confirmed the earlier studies that the are three times as sensitive to the price increase then the adults (Chaloupka, p. 4) because they don’t have money like adults would have. Over all with the tax increase we will see a decrease in overall sales of cigarettes. To have the great effect on reducing cancer from the use of tobacco...
Words: 1657 - Pages: 7
...Abstract Cigarette and Tobacco taxation has been a hot topic for years. Typically, the taxing of this product is accepted as there are health concerns associated with the consumption of tobacco products. The concept of raising cigarette taxes aligns with goals of increasing revenue for local, state and federal governments, and also works to increase the overall public health of the country. Although the taxation is widely accepted, there are concerns associated with who the taxation effects primarily, how funds are being utilized and issues with meeting budget goals with the earned revenue. This paper addresses each of these topics in an effort to identify the effectiveness of cigarette and tobacco taxation. Introduction The concern associated with the health risks of tobacco use and cigarettes began as early as the 1930’s. The ill effects of tobacco were studied by epidemiologists in long term case studies to assess the increase of lung cancer mortality to smoking. The findings were considered merely casual by Surgeon General Leroy Burney in 1957. As a few years passed, the concern between the relationship of smoking and health grew. This led to The American Cancer Society, The American Heart Association , The National Tuberculosis Association and the American Public Health Association collaborating together to address a letter to President Kennedy. In this letter they asked for a call to action on the issue of cigarette smoking. The Kennedy Administration...
Words: 3518 - Pages: 15
...before the Europeans came from England, Spain, France, and Italy to North America. Native American smoke tobacco though a pipe for special religious and medical purposes. They did not smoke every day. Tobacco was the first crop grown for money in North America. In 1612 the sellers of the first American colony in Jamestown, Virginia grew tobacco as a cash crop. By the 1800s, many people have begun use in small amounts of tobacco. Some chewed it. Others smoked it occasionally and a pipe or they hand rolled cigarette or cigar. On the average, people smoked about 40 cigarettes a year. The first commercial cigarettes were made in 1865 by Washington Duke on his 300-acre farm in Raleigh, North Carolina. The American tobacco Company was the largest and most powerful tobacco company until the early 1900s. In 1902 Phillip Morris Company came out with its marble brand. They were selling cigarettes mainly to men. Everything changed World War...
Words: 2579 - Pages: 11
...stakeholders and an analysis of the issue. And lastly, I describe my policy perspective. The Tobacco Tax Issue Is taxation on tobacco an effective means of decreasing the smoking rate or is it just an elaborate ploy to increase taxes by playing on voter emotions? The message is clear and has been etched in our minds over the years; tobacco kills. Tobacco and secondary tobacco products kill an estimated 440,000 Americans per year. Over the past several decades, state and local governments have passed tobacco excise taxes and other laws regulating the use of tobacco. But who is actually behind the legislature? First Tobacco Tax Tax on tobacco was first implemented by Alexander Hamilton, secretary of the treasury, in 1794 (Altman, 2009). The tax was soon repealed, but excise taxes have been a staple in federal revenues since the American Civil War. In 1921, Iowa successfully passed the first state tax on tobacco, with many states to follow. Not only does the federal government and state governments tax tobacco, but now city municipalities are also imposing a local tax on tobacco (Altman, 2009). But what is the current tobacco tax about? There are several sides to the argument, as is the case in most taxes. Advocates of the tobacco tax argue that the tax is not only an increase to federal, state and local government revenues, but also the tax saves lives. 900,000 lives were estimated to be saved with the 2009 tobacco tax increase and it...
Words: 3579 - Pages: 15
...Tobacco Taxation 1 Tobacco taxation is a hot topic and all 50 state governments have enacted taxes on cigarettes, and many have raised their taxes several times. Taxes on cigarettes are a way governments can achieve two social objectives; the first objective is to reduce the number of citizens who smoke. The government issuing the cigarette tax hopes that the rise in the cost of a pack of cigarettes will persuade people to quit smoking. The second objective is to raise government revenue. A cigarette tax, like any other tax, increases the amount of revenue governments can spend on social programs. Where there’s smoke, there’s taxes — especially for New Yorkers. In a 2010 budget move officials say will generate $440 million in revenue, the state legislature passed a bill that gave New York the highest cigarette tax in the country. On July 1, 2011 every pack sold in the state cost an extra $1.60, raising the total state tax to $4.35, pushing the average cost of a pack up to $9.20. For New York City residents, the cost of a pack will now come out to close to $11 — a $2 rise from just over a year ago. The $440 million in revenue will benefit health care programs, AIDS drugs subsidies, tobacco cessation programs and $71.6 million will go to the state cancer research center in Buffalo. Supporters also applaud the health benefits, saying it will reduce the number of smokers by tens of thousands of people. Tobacco consumption is the leading cause of preventable death in many...
Words: 1014 - Pages: 5
...Introduction Tobacco smoking or cigarette smoking is the practice of burning cigarette, taking the smoke into the mouth and then releasing it. This practice dates back as early as 5,000 – 3,000 B.C. but was introduced to Eurasia in the late 17th century where it has also been a commonly traded product. The practice received speculations and a lot of criticisms since it was first introduced but it somehow made its way inside the society and became widespread upon the invention of automated cigarette-rolling apparatus. The tobacco has been first introduced to other countries before reaching the Philippines. The idea of smoking tobacco first came from the Arawak Indians in 1492 that was noticed by Christopher Columbus. Seven years later, Amerigo Vespucci found out that the inhabitants in an island near Venezuela have already been practicing chewing dried leaves. In 1591, Mexico has already been growing tobacco at an increasing rate. It was believed that the tobacco was introduced by the Spaniards and Portuguese to mainland Europe, East Indies and Asia while they are on an expedition for searching for spices and spreading Christianity. Cigarette smoking became one of the highly sought after vice in the Philippines because of the affordable price of each stick ranging from seventy-five centavos to 2 pesos each, depending on its brand. The Philippine government came up with an idea of increasing the taxes imposed upon alcoholic beverages and cigarette sticks in order to minimize...
Words: 6218 - Pages: 25
...understand the taxation policies that prevail. India has a tobacco tax structure which is complex, different taxes for hand-rolled versus machine-made bidis, etcetera. In the table given, we observe that bidis are taxed less than filtered cigarettes. At the same time, the tax remains constant for bidis whereas it increases for cigarettes. In table 3.5, we observe that cheaper the tobacco, higher the tax because we assume that cheaper tobacco is more hazardous. But for bidis though the cost is cheap, it is taxed less as it focuses on the mass consumer whose buying potential is less. So its demand is more elastic than the expensive tobacco. Considering the data given in table in 3.1 and 3.5, tobacco products like bidis are less taxed, and it caters to the needs of majority of the consumers. Cigarettes and bidis are consumed by classes of people from different economic strata. Rural markets have a potential for bidis since the lower income group resides more in rural areas. The taxation on bidis is almost constant through the years, it is more profitable to enter the tobacco market through bidis in rural areas.. Own price elasticity in rural areas for bidis is more elastic than in urban areas. For example, an increase of 10% in price will decrease the quantity demanded by 9.2% in rural areas whereas 8.5% in urban areas Own price elasticity for cigarettes in rural areas is more elastic than in urban areas. Considering an increase of 10% in price, the decrease in demand...
Words: 1194 - Pages: 5
...Philippines a haven for cigarette smugglers By Chay Florentino Hofileña, Newsbreak Posted at 05/26/2009 7:55 AM | Updated as of 05/26/2009 8:20 AM (First of two parts) Fisherman Lino Bocalan became legend in the 1950s to 1960s after he chanced upon an alternative and more lucrative profession: cigarette smuggling. Beneath the seawaters of his sleepy hometown of Tanza in Cavite, Bocalan discovered gun powder among the remnants of Japanese or American ships from World War II. The finds proved especially useful for fishermen who engaged in dynamite fishing back then. Illiterate but supposedly gifted with numbers, Bocalan eventually linked up with traders in Mindanao who were drawn to his supply of gun powder. In exchange, they offered him “blue-seal” or imported cigarettes, which were illegally, and easily, transported from areas like Borneo because of the South’s un-policed shorelines. Before long, Bocalan built a fortune and a name in an industry that grew in Tanza, aided in part by the presence of Sangley Point, a former American base where blue-seal cigarettes were sold and taken out from its commissary. He eventually traded directly with Borneo, cut the southern connection, and became a millionaire. Decades later, the Tanza cottage industry has evolved into a lucrative national, and even a global, industry. The southern backdoor, where traders of smuggled cigarettes used to taunt law enforcers, has become an outmoded entry point. Smugglers have become more brazen,...
Words: 2046 - Pages: 9
...Chapter 1 Problem and Review of Related Literature Introduction Assessing the Main Effects of population strategies, such as tobacco taxation and pricing, on high-risk subpopulations is important for understanding the reach and effectiveness of such strategies. Increased tobacco taxes, passed on to consumers in the form of higher cigarette prices, provide an economic disincentive to those who smoke or may be contemplating smoking. Indeed, evidence from this knowledge synthesis strongly supports increasing cigarette prices through tobacco taxation as a powerful strategy for achieving major reductions in smoking among some, but not all, high-risk populations. This is a highly effective policy tool for reducing smoking participation and consumption among youth, young adults and persons of low socioeconomic status. In contrast, major gaps exist in our knowledge about the impact of price on persons diagnosed with mental health or non-nicotine substance abuse disorders, heavy and/or long-term smokers. Raising cigarette prices is an effective tobacco control policy in reducing smoking among youth. While most studies of young adults found that increased prices also result in reductions in smoking behavior, the magnitude tends to be smaller than for youth. Chaloupka and Pacula argue that because tobacco is an addictive substance, response to increased prices will occur more slowly than for non-addictive goods; therefore long-term gains may be larger than short-term gains. The impact...
Words: 3784 - Pages: 16
...conscious and It has been shown that combustion aerosols from cigarettes contain common chemical components such as carbon dioxide and carbon monoxide (Siahpush et al., 2006). Carbon monoxide is a major contributor to cardiovascular diseases from smoking. It impairs oxygen transportation in the blood. It is also strongly linked with the development of coronary heart disease. One gaseous constituent in cigarette smoke is hydrogen cyanide. Cyanide released from a cigarette can be 160 times greater than the level considered safe (Siahpush et al., 2006). It has a direct, harmful effect on the cilia, a part of the natural lung clearing mechanism in humans, thereby increasing the likelihood of developing disease. Risk from cyanide is significant with just one cigarette per day. Another gaseous constituent in cigarette smoke Silpakorn U Science & Tech J Vol.3(1), 2009 Smoking Behavior of Student is nitrogen oxide, of which the primary form is nitric oxide (NO) (Tobacco-Related Disease Research Program, 2007). Students who have never tried to quit smoking should be aware of their chance to get serious health in their future. Now a day’s most of the smokers are student the more the price of cigarettes high the lessen student who wants smoke. Through this study many could benefit not just for lessen expenses but also more knowledge on how it could affect in their lives. They also should be educated on toxic chemicals in cigarettes that could harm both smokers and passive smokers such as...
Words: 718 - Pages: 3
