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What Is Cigarette Price Inelastic?

Decent Essays
The graph shows the effecct on the consumers and producers based on the price on the tobacco products. A demand is . a supply is a negative consumption externality is the cost created by consumers.
The report talks about how the sale tax will reduce health but the tax hike varies. In fact, the demand for cigarettes should be price inelastic because cigarette smoking is addictive therefore there are no good substitutes for it. It explains why the indirect tax is relatively not effective in reducing consumption because it would only lead to higher price. As PED for a cigarette is inelastic only a very large amount of tax will bring the market output close to the socially optimal level.
On the first glance, cigarette tax could be more effective in discouraging young smokers from smoking because the purchasing power of young smokers is lower. The significance of expenditure is a determinant of PED,
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Besides, it would worsen crime rates as black marketers could use the revenue on other illegal deals and it would reduce tax revenue leading to opportunity costs as a smaller amount of welfare can be provided. Furthermore, the indirect tax would worsen the distribution of tax as it is by nature regressive which is deemed unfair to low income groups.

One important criticism of cigarette tax is that due to the inelastic demand for its government would collect the sizable tax and achieve the minimal result in reducing consumption. Thus, to make the policy more effective and ethical governments could
Use the tax collected to finance educational programs. This could reduce the perceived benefits of smoking thereby shifting the MPB or demand curve to the left. (fig. 2) This is particularly important in that the social culture in Mainland does not concern much about negative impacts of young smokers as the article mentions that 80% of the incidents vendors do not refuse young
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