Consider public policy to reduce smoking.
Tutor: Dr. Tamba Yarjah
Part 1: EC1F1A
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 enough will power (will power could be increased by the realisation of a 50% increase in price), the number of people who still buy cigarettes at the new, higher price will decrease.
c) ‘Studies also find that teenagers have a higher price elasticity (for cigarettes) than adults’. A higher price elasticity can be explained in two ways compared to the general price elasticity of cigarettes, in which a 50% increase in price will result in a 20 % decrease in demand. The first method of explaining a higher price elasticity is that a 50% increase in price will result in a decrease in demand >20%. The second is that to achieve a 20% decrease in demand, an increase in price of <50% is required. The simple explanation for this is a known determinant in price elasticity, Commodity Share. This means the amount spent on a good as a proportion of total income. In general, the higher the % of income spent on the good, the higher the price elasticity of demand. A teenager who is at school, college or university or in an unskilled, relatively low-paid job will spend a higher % of his/her income on the same number of packets of cigarettes as an adult with a higher annual wage. This means that their price elasticity of demand for cigarettes will be higher than adults.
A second way of looking at it is that most adults who smoke have probably done so since an early age, either when they were not fully aware of the health implications, or when they simply did not care. Somebody who has been addicted to nicotine for many years is obviously going to find it harder to shed their addiction than somebody who has only recently taken up smoking, or worse still only smokes because they perceive smoking as an ‘image’ with which they wish to be connected. This ability to give up smoking more easily is indicated by the higher price elasticity of teenagers, they are more prepared to give up than adults are when the price of cigarettes is increased.
In conclusion, the government policy to reduce smoking by increasing the price of cigarettes will work, however it will take a long while. Some people simply do not want to give up smoking and although they cannot really afford to smoke, will carry on regardless. It is people like this who will not see the health issues behind the increase in price of cigarettes but only that they are being forced to pay more for their habit, they will be all to quick to criticise the government for placing an unfair tax on those who feel that they have no choice but to pay. Perhaps a better method for reducing the number of smokers would be to increase the price less and make up for this by banning smoking in public places, banning tobacco advertising within the community (including sporting events and billboards etc.) and increasing awareness as to just how much smoking really does harm your body.
- Colin Ash, Lecture notes.
- N. Gregory Mankiw, Principles of Economics Third Edition.
- , The Politics of smoking in Britain.
- , Legislation and Policy.
- , Comparative Statistics and Demand.