What Is Cigarette Price Inelastic?

even though the author of this article talks in particular about excise taxes, this initiative will eventually affect the buyer because they will have to pay more for the this products they are consuming. In class, we have a discussion on sales taxes and the incidence of tax. Even though cigarette distributers are required by law to pay this tax, the consumers of cigarettes are going to end up paying more for the increase of taxes. Therefore, this article is also related to the legal and economic incidence of a

History has proven that government penalties, in the form of taxes, deter smoking. The 2000 U.S. Surgeon General’s Report, Reducing Tobacco Use, found that raising tobacco-product prices decreases the prevalence of tobacco use, and tobacco tax increases produce significant long-term improvements in health. From its review of existing research, the report concluded that raising tobacco taxes is one of the most effective tobacco prevention and control strategies (7). Along with price increases, mass-media campaigns and smoking bans have made cigarette smoking pretty much unacceptable in today’s society. “Today, approximately 22 percent of adults age twenty-two and older are smokers, compared with 33 percent in 1979” (Thorpe 1440). It is clear, from these examples, the use of penalties to deter the unhealthy behavior of smoking is a successful intervention.

For students the most direct impact of smoking is that smoking is negatively related to students’ school performance. The results of poor academic achievement dose not reduce students’ self-confidence, but also affect their future employment status. On the other hand, the opportunity cost of smoking is much expensive than other habit. Based on University of Texas’ calculation , the annual cost on smoking for pack-a-day habit is about 3720 US dollars, which includes insurance cost, health care cost and etc.. Nevertheless, the cost in Canada should be much higher because the average price for a pack of cigarette in the US is only $6 but $10 in Canada. Besides, the currency exchange rate and price index will grow up the expenses for

The purpose of this economics report is to illustrate the economic concerns and arguments around smoking in Australia and the methods of taxing aimed at reducing the smoking rate. The report will use a variety of research articles, economic theories and models to report on this issue so that the CEO of the Cancer Council of Australia has a thorough understanding.

Health is widely diversified in the United States because of the best resources available by the health care systems in hospitals. New inventions are being developed every day, and billions of dollars have been spent to increase the level of health care while lowering the cost of insurance so hospitals can offer the best treatment. Meanwhile, there are people in our society who are excessive smokers and drinkers, and these limitless behaviors have an effect on the cost of insurance and hospital services. The taxes received from products such as cigarettes and alcohol are referred to as ‘Sin taxes’ -- due to the harmful effects that these products have on your health, and due to the increased medical cost for government. Smoking has been the leading cause of high risk problems such as heart attack and lung cancer, and people still continue these unhealthy habits which can lead to hospitalization and even death. The consumer of these products should feel the pinch of paying high ‘sin taxes’. Therefore, the government should increase taxes on alcohol and tobacco to help pay for the rising cost of medical expenses.

Department of Health & Human Services 2000 report by the Surgeon General. Increasing the price of a pack of cigarettes by ten percent has been shown to reduce smoking rates by an average of 4.8 percent (a mean price elasticity of -0.48) as more smokers quit and fewer potential smokers start. This effect is greatest among youth and low income consumers, who are particularly sensitive to price. However, inelastic goods, such as tobacco, have fewer substitutes and a price change will not have a significant influence on the quantity demanded. In the long run, time may be the greater influece as it moves the elasticity of cigarettes to one that is more elastic, if the smoker finds he can no longer afford the $2 per pack and eventually begins to kick the

The impact of the tax is an increase in the cost of every pack of cigarette a consumer buys. Since smokers view cigarettes as necessities as their addiction to nicotine worsens, the demand curve is relatively steep. When demand curves are steep, the consumer is burdened with paying most of the tax. Therefore, the price of cigarettes will rise greatly if the excise tax is passed. The party that cannot respond to the change are the ones that pay the tax. There are no substitutes for cigarettes, especially considering that this tax includes all forms tobacco and electronic cigarettes. Part of the reason this tax is on the ballot is to increase revenue, and the increase in revenue will be used “to replace old revenue lost due to lower tobacco consumption

The establishment of a cigarette tax policy would contribute to the reduction of cigarette consumption, because the equilibrium price of the market would increase and considering the consumer's budget constraint, the quantity demanded would decrease. In this sense, the demand model is optimal to represent the establishment of this policy and the reduction of cigarette consumption as a consequence. Because this model specifies the demand equation so that the quantity of cigarettes demanded is a function of cigarette prices, consumer income, and tax policies.

The above graph shows that at the original price level(P), the marginal private benefit(MPB) of cigarette is greater than the marginal social cost (MSC). This means that cigarette is over-consumed and the green triangle between MSB and MPB shows the welfare loss. The government may decide to increase the indirect tax to cigarette as the cost of cigarette(healthcare) outstrip the taxation it collects. The supply curve shifts to the left from S=MPC=MSC to S+tax. The quantity consumed will decreases from Q to Q1 and the problem of over-consumed will be solved as the yellow triangle that represents the decrease in consumption is equal to the original welfare loss triangle.

Cigarette smoking and tobacco usage is a negative externality of consumption, an economic activity that imposes costs on a third party for which the consumer doesn’t account for the costs. In this case, those who are passive smoking, diseases and health issues are the costs towards them. Negative externalities are one of the sources of market failure, a situation where, in any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium. Negative externalities occur due to the overprovision of demerit goods, a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves. They are over-consumed and over-produced.

There are many cities who have implemented bans on cigarettes, but China overall is still the leading consumer of cigarettes in the world. A countrywide tax on cigarettes has been proposed to their Ministry of Finance, and Ministry of Economics and Trade, but a decision has yet to be made. Tobacco production provides substantial revenue to the government and a tax increase will have a significant effect on the central government and reduction of consumption of cigarettes. According to a study done by the group proposing the tax, “a 25% tax increase will have an overall monetary benefit that far exceeds the negative impact on the cigarette industry and tobacco farmers. In financial terms alone, not counting the number of lives saved and medical care cost savings, the gain of the central government tax revenue (24.58 billion Yuan) twice exceeds the loss of tobacco farmers’ earnings, tobacco industry workers’ earning and loss of industry and local government revenue (11.74 billion Yuan)” (Hu TW 107). There many components to this calculation, but some factors included the reduction of cigarette consumption, the number of lives saved, savings in medical care costs, gains in productivity due to avoidance of premature death, industry revenue lost, lost jobs in cigarette industry, loss of tobacco income, and loss of local government

It is uncommon to feel oppressed when one’s surroundings does not protect his health against unhealthy habits. Such a scenario is seen when people smoke in closed public areas which results in health consequences for others. The same is observed with regards to alcohol where incidences of physical harassment and accidents have been acknowledged. It is unethical and greedy for one to think about himself and his rights, forgetting his duties towards others in the society. For those who claim that this is a free country and people have the right to do whatever they want, the government interferes and prohibits these actions when these actions negatively affects others. Raising sin taxes on tobacco and alcohol will result in three different problems such as business’s disagreements and objections toward governmental taxation, unaffordability for the poor, and the increase of the unemployment rate.

The cigarette industry is known to cause market failure. It burdens society with disease and reduces social economic welfare. These negative externalities are thought to far outweigh any economic benefits that the industry yields (Guhl & Hughes n.d). To combat this, governments implement indirect taxes with the aim of reducing the number of smokers. Evidence shows that this has been the most effective means of reducing demand for cigarettes (Cotter, Dunclop & Perez 2011). In the context of the competitive model, this essay will explain how taxes on cigarettes reduce demand, including discussion of the short-term and long-term price elasticity of demand, how the tax burden is distributed between consumers and producers, redistribution of

The Cigarette Industry is under attack from all sides. They have battled public opinion, government regulations, and medical warnings since the mid 1900’s. A front-page article by Reader’s Digest in 1952 entitled “Cancer by the Carton” started the national dialogue about the negative health affects of smoking cigarettes. The medical community had published articles since the 1930’s about the possible negative affects of smoking, but it took until the 1950’s to gain public attention. Smoking prevalence among adults in the United States has dropped from 42% to 18.1% from 1968 to 2014. With the number of smoker dropping, and government regulation increasing, one could make the assumption that the Cigarette Industry is falling into steep economic decline. A little research shows the opposite. In Barbarians at the Gate: The Fall of RJR Nabisco Warren Buffet said, “I'll tell you why I like the cigarette business. It cost a penny to make. Sell it for a dollar. It's addictive. And there's a fantastic brand loyalty.” Using Porter’s Five Forces and analyzing the general environment, one can see that the Cigarette Industry is not only surviving, it is thriving.

cigarette tax, which is known as the consumption tax, has been levied at the wholesale level. In