• 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...


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.


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.


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. 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.

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

    James Middleton said that the increase is "manifestly inadequate". However he believes that Macau should not follow Hong Kong's footsteps and look at Singapore instead. "The retail prices of a packet of 20 cigarettes [Marlboro brand] overseas as of now are: HKD 117 in New York, HKD 94 in Ireland

  2. Strategic and Operational Performance Assessment at Petrom

    experience, Petrom is best positioned to seize the opportunities in both oil and gas as well as in power markets.

  1. This essay will evaluate the concept of what negative externalities are and how they ...

    This makes factories use private costs to improve and make their factories more environmentally friendly. The negative side to such a solution is that a ban/restriction would most likely lead to a rise in unemployment rates.

  2. The Benefits of Microcredit to Bangladesh

    Loans for ultra poor, 4. Agricultural loans, 5. Seasonal loans, and 6. Loans for disaster management. Loan amounts up to BDT 30,000 are generally considered as microcredit; loans above this amount are considered as microenterprise loans. KEY INFORMATION OF MICROFINANCE SECTOR Sl No. Particulars June 2009 (489 NGO - MFIs)

  1. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    This marked the prominence of slavery in the western hemisphere, which would serve as profitable assets or commodities. Why did David Ricardo see the "corn laws" as destructive to industrial development? The Corn Laws were trade laws designed to protect cereal producers in the United Kingdom of Great Britain and

  2. Commentary on the article. The introduction of the weed pass in Amsterdam will lead ...

    The weed pass is a pass that allows Dutch citizens of 18 years and older to buy cannabis legally in coffee shops. However not all are equally happy with the introduction of this pass, because the matter of the fact remains, The Netherlands is an attractive country for tourists which is mostly based on the legal consumption of cannabis.

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