Consider public policy to reduce smoking.

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Andrew Lidgey

Tutor: Dr. Tamba Yarjah

Part 1: EC1F1A

Introductory Economics.

Autumn Term Essay.

Consider public policy to reduce smoking.

        Government justification for its attempts to reduce smoking are based around the key points that:

  • Smoking damages health and increasing the price of a packet of cigarettes will reduce the number of smokers.
  • Revenues raised from the tax on tobacco will help to offset costs to the National Health Service from smoking related illnesses.

a)          Price elasticity of demand measures how much quantity demanded responds to changes in the price. The price elasticity of demand for a packet of cigarettes is about 0.4, this is an example of a product with an inelastic demand (because p.e.d<1). If the government wants to reduce smoking by 20% then the price of cigarettes must be increased by 50%. The price of cigarettes is currently £2.00 (50% 0f £2.00 is £1.00 ), meaning that the new price should be £3.00. The method of calculating this increase in price is shown below along with an example of an inelastic demand curve.

b)         If the Government permanently increases the price of cigarettes, the policy will have a far greater effect in five years time than in one years time. This is because cigarettes are a drug that are more addictive than many illegal drugs. Products with an inelastic demand are considered to be a necessity rather than a luxury which further emphasises the point that smokers simply cannot live without cigarettes. The inelasticity of cigarettes shows that there are few close substitutes, only rolling tobacco, pipe tobacco and cigars are currently available as alternatives and, like cigarettes, are extremely bad for your health. This means that they too are likely to have their prices increased alongside cigarettes. An increase in the price of cigarettes, however, is definitely not going to entice more people to start smoking and it is here that the real benefits of an increased price will be seen. If less people start smoking now, then in only a few years time we will notice a drastic decline in the total number of smokers.

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        A second factor that affects price elasticity of demand is time. The longer the time period, the more price elastic is the demand for the product. For example, before the ban on leaded petrol was introduced, an increase in the price of leaded petrol would not have changed my demand for it in the short term. However, the next car that I bought would more than likely use unleaded petrol. This is very similar to the trend we would see with an increase in the price of  cigarettes. An addiction cannot simply be forgotten about, but over time and with ...

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