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Microeconomics: Cigarette Taxes and Public Smoking Ban Case Study

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Updated: May 7th, 2021

You are a government minister. What arguments might you put forward in favor of maximizing the revenue from cigarette taxation?

Several arguments can be used to support the idea of maximizing cigarette taxation. To begin with, cigarette taxation can be a good source of revenue. When the government gets increased revenues from cigarettes, it can address a wide range of health challenges affecting its people. The second argument is that increased taxes will encourage more citizens to quit smoking. Many analysts and experts believe strongly that the taxation initiative can augment other measures aimed at dealing with the problem of smoking. The problem of passive smoking will be minimized when the number of smokers decreases. Past researches have also indicated that smoking causes forest fires. Studies have also shown conclusively that smokers tend to have higher chances of causing road accidents. These problems can be put forward in favor of increased cigarette taxation.

What has been the likely impact on businesses and individuals of the ban on smoking in public places?

The major companies producing or marketing cigarettes are affected negatively by policies banning smoking in public places. The ban will reduce the number of people who smoke. Consequently, the companies will record minimized sales and profits. Many emerging businesses have been affected by the policies. The policies are critical because they force many people to change their smoking habits and behaviors. Some experts have argued significantly that the policies might help more people quit smoking. On the other side, banning smoking in public areas will address the health challenges affecting many passive smokers. Passive smoking is a major problem affecting many individuals across the globe.

A 2010 HMRC study on smoking estimates the long-term elasticity of demand as -0.57, with a short-term elasticity of -1.05. Explain these figures.

This study conducted by the HMRC in 2010 presents interesting facts about cigarette demand and consumer behaviors. According to the study, the long-term elasticity of cigarette demand is around -0.57 while the short-term one is -1.05. These figures show conclusively that cigarettes tend to have a price-inelastic demand. This means that a direct taxation policy targeting cigarettes will only discourage a very small percentage of customers from smoking. The number of individuals who quit smoking will decrease significantly in the long run. The study goes further to indicate that a new policy aimed at taxing cigarettes will result in increased revenues. That being the case, the taxation of tobacco-related products is a powerful method that can be used by governments to raise revenues.

Many people think that if tobacco were to be discovered today it would be an illegal substance, as is the case with cannabis. What problems would face a government trying to ban smoking completely?

Statistics and medical evidence show conclusively that cigarettes are harmful products that affect the lives of many people. This fact explains why many policies have been implemented to control the use of cigarettes. Several governments have been focusing on different measures to ban cigarettes completely. It is agreeable that any attempt aimed at banning smoking completely will face a wide range of obstacles. The first problem is that the attempt will result in smuggling. Smokers will be willing to pay more money to acquire smuggled cigarettes. The second problem arises from tobacco-related criminal activities. Most of the addicts will engage in various criminal activities to acquire cigarettes. It is also agreeable that the number of illegal companies manufacturing cigarettes and other tobacco-based products will increase. The government will create new problems by banning smoking completely. For instance, many marginalized households will encounter numerous challenges such as poverty. It is agreeable that the meager incomes of such families will be used to purchase cigarettes. Consequently, the government will be forced to find evidence-based solutions to these problems.

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IvyPanda. 2021. "Microeconomics: Cigarette Taxes and Public Smoking Ban." May 7, 2021. https://ivypanda.com/essays/microeconomics-cigarette-taxes-and-public-smoking-ban/.

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IvyPanda. (2021) 'Microeconomics: Cigarette Taxes and Public Smoking Ban'. 7 May.

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