BUSINESS AND ECONOMICS Smoking and Tax Essay

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BUSINESS AND ECONOMICS

——Smoking and Tax

Introduction
In the past decades, an increasing number of countries have published a ban on smoking in public places. Someone agree this government policy of ban smoking which will help the nonsmokers and children keep away from the second hand smoke. However, some cigarette industries don’t accept it. In this essay, I will explain the cigarette and tax relation with some economics words. And connecting with Hazlitt’s book of ‘Economics in One Lesson’ to give the suggestion and recommendation.

Economics in one lesson
In Hazlitt’s book of ‘Economics in One Lesson’, it has discussed the effects of governmental efforts to fix the price of commodities above or below the levels to which free market would otherwise have carried them. In a perfect free market, market price is the equilibrium price which when total demands equal to total supply. Many people, however, believe these fallacies because of man’s nature to see only the “immediate effects of a given policy, or its effects only on a special group (Henry Hazlitt, 2009).” Those people neglect the long-term effects and the implications on other groups by an economic policy. Classical economists only focused on long-term consequences and not the immediate damage incurred by certain groups.

Cigarette and Tax
In the theory of Economic, it assumes that consumers know what the best choice for them. Economists suppose that the most efficient way to allocating society's scarce resources is to allow individuals to make their own consumption choices (such as whether or not to purchase a particular product) within a free, competitive market (Scollo, MM & Winstanley, MH, 2012). According to this economic assumption, if smokers totally and freely addicted tobacco with full information of the health consequences and drugs potential, and if they also accept all the consequences of their choices, then the market is efficient, and there is no justification for government intervention (Jha P[et al], 2000).
Each year, tobacco kills more than 5 million people. It is on track to kill more than 8 million by 2030, by which time approximately 80% of the deaths would occur in low- and middle-income countries (WHO, 2014).
Figure 1 shows consumer and producer surplus when a market reaches the equilibrium, which are point of the supply curve cross the demand curve. Recall that consumer surplus equals the area above the price and the under the demand curve and producer surplus equals the area below the price and above the supply curve. In the cigarette industry, this is the best situation for the smokers and producers. As the equilibrium, the benefit for both sides are maximum, which the producers produce more with high benefits and the smokers will satisfy with their requirement no matter mental and physical.

Figure 1
(Source: http://catalog.flatworldknowledge.com/bookhub/reader/21?e=rittenberg-ch06_s03)
However, the producer just see the present benefits and forget the long consequences just like the 2nd hand smoke will cause the air pollution for the public environment and break the health system to the nonsmokers and children, also will hurt smoker themselves. Consequently, it will cause the negative externality for the social economy.
An externalities arises when a person engages in an activity that influences the wellbeing of a bystander but the person neither pays nor receives any compensation for that effect (Joshua Gans [et al], 2012). For each unit of cigarette smoked, a certain amount of smoke enters the atmosphere. Because this second hand smoke creates a health risk for those who breathe the air, such as non-smokers and children, it is a negative externality. Because of the externalities, the cost of society of producing cigarette is larger than the cost to cigarette producers. Figure 2 shows the social cost of producing cigarette.

Figure 2
(Source: http://blogs.yis.ac.jp/13nozawae/page/2/)
When the government introduce the tax on…