Answer to Question #210751 in Microeconomics for Rolin Simo

Question

a) Explain why cigarette smoking is often described as a good with negative externalities. (3m)

 

b) Why might a tax on cigarettes induce the market for cigarettes to perform more efficiently? (3m)

 

c) How would you evaluate a proposal to ban cigarette smoking? Would a ban on smoking necessarily be economically efficient? (4m)

Answer 1

a) Cigarettes tend to have negative effects for both the active and passive smoker. It may seem enjoying for the one smoking, only to find his health is adversely affected.

b). The tax on Cigarettes will legalize the product more. This comes as other regions it is considered as an illegal drug. In this case, the respective industry will have more access, hence the market performing more efficient.

c). Proposal to ban cigarettes may negatively impact the respective industry, as their market will diminish causing unemployment to several people. However, it may be beneficial to other people as their health will be spared, including the passive smoker, hence reducing medical expenses.

The ban may be economically efficient since the expenses incurred by the individual adversely affected by the product may not be compared to the price of the product.