Tax On Smoking Essay

1079 Words5 Pages
With regards to a tax on smoking I believe that it would be unlikely that the negative externalities, the spill-over effects onto third parties that are not given compensation for those issues, of smoking would be corrected solely by a tax on them. The reason why government intervention is required within the cigarette market is because it is a market failure – there is an inefficient allocation of resources causing both too much production and too much consumption of the product. The following evaluation will identify my reasons why a tax is likely to be ineffective. Above, my supply and demand diagram reveals what theoretically would happen after an indirect tax has been placed on the production of the cigarettes. Beginning with the…show more content…
However, this tax is incredibly regressive – the majority of smokers in the United Kingdom are from a poorer background. By placing this indirect tax on the supplier, most of the cost (P1->P2) is taken by the consumer because the market is inelastic. Although this will heavily decrease the marginal utility of that good, as cigarettes are often depended upon people will substitute costs such as food and rent for cigarettes instead, causing a government failure from the bad tax. This analysis of the diagrams represents how little difference is tax is likely to make because of the inaccuracy of the theoretical analysis and the large inelasticity of PED. I have represented the inelasticity by a steep curve for demand and the PMB in each of the graphs so that a unitary increase in price will cause a very small decrease in demand. As such a regressive tax will not only cause a small change in demand but displacement within the poorer communities, I will say that a tax is not an efficient or even moral way to tackle the issue of the negative externalities caused by smoking. But smoking is not just a production issue; it is also a consumerism issue. Too many cigarettes are being consumed, and so I believe that a value judgement towards the most effective method of reducing the negative externalities caused by
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