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Why are taxes, one traditional remedy for negative externalities, less than ideal for smoking cessation in the United States? a
Why are taxes, one traditional remedy for negative externalities, less than ideal for smoking cessation in the United States?
a. Nicotine is addictive/demand is inelastic, and smokers are mostly poor, so in effect, cigarette taxes reduce the quality of life of people we're trying to help without substantially reducing smoking.
b. Demand is inelastic, and smokers are mostly rich, so they don't reduce smoking as a result of taxes.
c. Demand is elastic, and smokers are mostly old, so taxes reduce smoking but cause increased anxiety among the elderly.
d. Demand is elastic, and smokers are mostly young, so they quit smoking but are then more likely to experiment with illegal drugs.
Expert Solution
The correct option is:
a. Nicotine is addictive/demand is inelastic, and smokers are mostly poor, so in effect, cigarette taxes reduce the quality of life of people we're trying to help without substantially reducing smoking.
Smoking is an addiction and the demand for it is inelastic. Therefore, an increase in the price of it would not reduce its demand.The consumer would reduce the consumption expenditure on other goods but would continue to with the same level of smoke consumption.
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