Answer to Question #208439 in Microeconomics for Kyle

Question

Explain why cigarette smoking is often described as a good with negative externalities.

Answer 1

Cigarettes tends to be demerit good that is availed by the market, as its consumption is dangerous to the society. Cigarettes tend to be harmful since they result to negative externalities. This based on the fact that cigarettes consumption have spillover effect towards third parties while their is no compensation for the event. Cigarettes consuming normally benefits the consumer compared to the society. Therefore, consumer's marginal benefit tends to be greater compared to the society's case. The outcomes in allocative inefficiency are gained by cigarettes industry. The negative externalities brought about by consumption of cigarettes leads to health problems for a consumer as it similarly jeopardizes the society in general.