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An important and debateable issue has struck New York when Mayor Michael Bloomberg announced that he wants to ban smoking in restaurants and bars.

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Introduction

Economics Commentary Article by: Mark McCord, South China Morning Post, 08/21/02 An important and debateable issue has struck New York when Mayor Michael Bloomberg announced that he wants to ban smoking in restaurants and bars. His argument is that the health of waiters, kitchen workers and all other staff is unfairly endangered by the unnecessary smoking allowance in New York's 13,000 pubs and eateries. He says, "No one should have to breathe poison to hold a job or frequent an indoor public space, and city health figures showed 1,000 people a year died in New York City from smoking-related illnesses". ...read more.

Middle

Judging by these figures it is necessary to understand the concept of elasticity so that it is possible to observe (on a diagram) whether or not the price for a good is elastic or not. (Definition: Elasticity indicates how one variable responds to a change in another variable. The main types of elasticity are elasticity of demand (price, cross price, income, advertising), and the elasticity of supply (price). The value can be either elastic or inelastic. An elastic value implies that the there will be a significant change in the quantity due to a change in the other variable, hence, it is very sensitive. ...read more.

Conclusion

This taxation can be seen as an initiative to bring the Marginal Private Cost of cigarettes closer to the Marginal Social Cost, which is present because of the negative externalities that the consumption of cigarettes carries with it such as healthcare. The taxation does not only bring additional money to the state but also reduces the amount of people that smoke, which will reduce illnesses provoked by smoking and therefor the amount of money needed to invest in healthcare. This would eventually lead to a social optimum. If this is not the case, then there is a Market Failure (Definition: Market failure occurs when the workings of the price mechanism are imperfect and result in an inefficient or grossly unfair allocation of resources from the perspective of society.) ...read more.

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