• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Alabama's Cigarette Tax Article. The basic economic problem in this article is negative externalities. An externality occurs when there is a divergence between social and private costs and benefits.

Extracts from this document...

Introduction

Cigarette Tax Posted by admin on January 6, 2012 Two Democratic lawmakers filed a proposal to raise state Alabama's cigarette taxes, one of 32.5 cents per pack and other for $ 1 per pack, trying to fill what may be $ 400 million deficit in the state General Fund next fiscal year, according to News Birmingham. State Representative Patricia Todd filed a bill that would raise the state tax from 42.5 cents cigarettes to 75 cents per pack, which will raise about 75 million dollars a year for the General Fund. Todd cigarette tax increases every year since 2008, and each plan is dead, the report said. But some senior Republicans - the party is dominated by the state legislature - said they doubted the legislature to raise taxes on cigarettes in 2012 regular session. But Todd said she thinks there is a 60 percent chance that the gloomy forecast of the budget for fiscal 2013 that begins Oct. 1, will motivate lawmakers to pass its proposed tax hike cigarette to alleviate what could be a sharp reduction in public services. ...read more.

Middle

Current state of Alabama's cigarette tax of 42.5 cents per pack was, as of November 17, the fifth lowest among the 50 states, the report said, referring to the National Conference of State Legislatures. The average state tax amounted to 1.29 dollar per pack. http://www.cigarettesreviews.com/cigarette-tax-2 The basic economic problem in this article is negative externalities. An externality occurs when there is a divergence between social and private costs and benefits. Cigarettes and secondary smoking are considered to be negative externalities of consumption. In this case the marginal social benefit (MSB) is less than the marginal private benefit (MPB). This is shown in the diagram below. Because of a free market, the consumers will maximize their maximum personal benefit (when MPC=MPB), and consume at the level where MSC (marginal social cost) =MPB. This will create over-consumption of cigarettes at Q1 at a price P1. The socially efficient output is at Q and so the free market overproduces from Q to Q1. This causes welfare loss to society and a market failure. The government will attempt to do two things to reduce or eliminate the negative externality and the market failure. ...read more.

Conclusion

Therefore, quantity demanded doesn't fall to the socially efficient level. Also, if taxes are raised too much, then people start looking for other sources of supply or perhaps substitutes for cigarettes such as cheaper cigarettes off the internet. A cause of this may be the emergence of a black market; this contradicts the Editorial Board's statement "we are strong advocates of raising cigarette tax - and the higher the better". Taxation seems to be the better choice, provided that the revenue gained exceeds the social costs. The tax revenue can be used to subsidize health-care costs to ease the burden of the taxpayer. It can also be used to educate and advertise against smoking, as well as initiating programs to help smokers stop. Hopefully this will in the long run reduce the demand for cigarettes and so shift MPB to the left closer to MSB, thus reducing the health-care costs. However, it would increase the costs to smokers and producers in the tobacco industry. In the short run, this may lead to unemployment; while in the long run unemployment might fall since the indirect costs, such as lost wages due to smoking related illnesses, will fall. ?? ?? ?? ?? Carina K�rner IB Economics Internal Assessment ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. 'Cigarette tax hike would benefit Tennessee residents' discuss.

    Food is mostly agricultural and thus are most likely to be subsidised anyway. Therefore the government gains by not having to subsidise the food producers as much as before.

  2. Negative Externalities

    It is also argued that taxes do not stop pollution from taking place. 2) The government can also ban paper production, or restrict output. This can be done by passing laws relating to measurable environmental standards. In order to do this, the firm will have to pay money, thus increasing private costs.

  1. Essay on negative externalities

    types of negative externalities are negative externalities of consumption Negative externalities of consumption: When a product consumed by an individual adversely affects a third party , it is known to have negative externalities of consumption Examples include smoke from cigarettes, fumes from cars, alcohol , drugs etc These negative externalities make social benefits less than marginal private benefits.

  2. Effects of smoking on Society

    Long-term smokers have half the risk of Parkinson's disease than do nonsmokers. (Vastag) The study was conducted on 12,000 people, and showed that those who smoked the most (had been smoking at least a pack a day for 60 years) had the lowest risk of contracting the illness (Vastag).

  1. Negative Externalities Essay

    Since it is in the interest of the firms to pollute as little as possible, if a firm pollutes at a higher level than the permit allows, it will need to invest in more permits to cover their pollution costs, thus spending more money, and yet again increasing their costs.

  2. Market Failure IA Commentary. This article is about the price of cigarettes in Macao ...

    (and increasing next year); HKD 88 in England and increasing in 2012; HKD 85 in Australia (adjusted since they sell in packets of 25) and increasing in 2012; HKD 72 in Singapore for the past four years; and HKD 50 in Hong Kong," he said.?Middleton urged the Macau Government to set the tax to match Singapore levels.

  1. Smoking in the UK - economic analysis of its costs.

    1.4 Aims This article will tell you the positive and negative externalities of cigarette smoking. Moreover, it offers how effective the government had been done for reducing consumption of cigarette and also the other opinions of government instruments which can control the consumption of tobacco are included.

  2. The Benefits of Microcredit to Bangladesh

    themselves in various income-generating activities and around 30 million poor people are directly benefited from microcredit programs. Credit services of this sector can be categorized into six broad groups: 1. General microcredit for small-scale self employment based activities, 2. Microenterprise loans, 3. Loans for ultra poor, 4. Agricultural loans, 5.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work