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

Economic Commentary - The article talks about the measure taken by the New York state legislature to reduce smoking by increasing the excise tax[1] by $1.25 on every pack of cigarette

Extracts from this document...


The article talks about the measure taken by the New York state legislature to reduce smoking by increasing the excise tax1 by $1.25 on every pack of cigarette along with already existing Clean Indoor Air Act makes New York a national leader in tobacco controls. I will be analyzing the smoking externality2 and possible measure to eliminate the external cost. Smoking is a negative externality because the marginal cost of smoking a cigarette is usually under looked. The unregulated market system takes into consideration only the marginal private cost (MPC)3. Both smokers and non-smokers 4 pay a high cost as it worsens their health. This is the reason why firms that produce at Qe5 are overproducing from the social view point (refer figure 1). ...read more.


Taxes won't work that well as smoking is an addiction which means demand is inelastic. According to the coase theorem, the voluntary agreement 12fails in this case because a large number of people are involved and costs of transaction are big. Unfortunately, negative advertisement on every pack of cigarette i.e. "Smoking is injurious to your health" has also proved futile. The introduction of tradable permits in places where they don't exist and increase in prices at already existent will prove handy. Agreements like the "Koyoto protocol" which was signed between nations should be signed between the states of US. These agreements will give different places permissible overall level of pollutiton and they have to abide by them. Government intervention is highly needed as legislative measure like "No Smoking" in resteraunts, hospitals, offices and schools if enforced with a greater impact will lead to reduced consumption. ...read more.


Together the external cost is internalized. Furthermore, the revenue collected from taxing can be used for health purposes and educating people in the future. 1 Tax on the sale of specific items 2 A cost or benefit that arises from an economic transaction and falls on people who do not participate in that transaction 3 Firms opportunity cost of producing one extra unit 4 Second hand smokers 5 Quantity supplied at competitive equilibrium 6 Total cost paid by the society for producing/consumption of one extra unit. 7 Equilibrium quantity with increased taxes 8Price at competitive equilibrium 9 Price at regulated equilibrium 10 Point where demand and supply curve meets 11 loss to the society because nobody gains from it 12 Negotiation method ?? ?? ?? ?? ...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. Effects of smoking on Society

    In the United States, secondhand smoke is thought to cause about 46,000 heart disease deaths each year. (National Cancer Institute) Studies also show that second hand smoke is one of the causes of Sudden Infant Death Syndrome. (SIDS). According to Brian Easton of the Wellington School of Medicine 59% of

  2. Is it possible to reduce unemployment without increasing inflation

    Keynes himself put a lot emphasis in money illusion by which economic agents in general and workers in particular will focus its economic decisions on nominal wages rather than real wages.

  1. Alabama's Cigarette Tax Article. The basic economic problem in this article is negative externalities. ...

    "I think this is a proposal that does it." David Sutton, a representative cigarette manufacturer in Richmond, Va.-based Philip Morris USA, said that it would not be fair to fill the shortfall of income tax a minority of taxpayers. "You're talking about raising taxes on one segment of the population,

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

    "Everyone working in public health knows that tobacco taxation is the most effective measure in reducing tobacco use among youth. The reason is very simple - it makes them too expensive for youth to purchase."?"If the Macau government is serious about reducing tobacco use, especially among the young, then tobacco taxes should be regularly and robustly raised.

  1. Economics Extended Essay - To what extent has the market for paintings in South ...

    the quantity demanded of a good to a change in its price. If the absolute value of the elasticity of a good is greater than 1, then the good is price elastic. Price elasticity of a good depends on various factors: substitutes of the goods, percentage of income and necessity.

  2. What is the impact of the Notional Interest Tax Deduction system on investments in ...

    In today's world of competition it is imperative that each country proves itself to be a global power. In order to do this the Belgian government recently launched the Notional Interest Tax Deduction System (NITDS) in order to increase the volume of foreign and domestic investments in Belgium, and therefore to decrease the unemployment rate.

  1. Economics commentary - China set to introduce new rules on smoking in public

    This statement is a very dangerous signal for china, mentioning that Chinese future is unsafe concerning both socially and economically as well, because "Smoking is a very old Chinese tradition" , which actually affects negatively the economical issues. Cigarettes are considered as demerit good.

  2. Economics Commentary - Russian Quota on US Pork and Indian Government Tax on cars.

    This is because they will be able to supply 0-QS1, QS2-QD2 and QS3-QD3 at a price of WP+ Decreased Quota. Foreign producers will now supply their quota of QS1-QS2 and receive a price of WP+ Decreased Quota. This should usually result in a fall in income, which would be detrimental

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