Cigarette indirect tax
The article is about the Health officials would add $2 tax to packs of cigarettes in California in order to discourage people from smoking to save lives.
One major aim to raise the tax is to reduce the consumption of cigarette because it is a de-merit good which would bring bad impacts on the economy. Second-hand smoking may cause serious illness to people around, so it is considered as negative externality, defined as an activity that imposes a negative effect on the third party. The market for cigarette is an example of market failure. The marginal social benefit MSB is smaller than the marginal private benefit, because the smokers do a harm to the society by harming non-smokers. The difference between marginal social …show more content…
Cigarette is over-consumed by Qe-Qopt units. Since MSC is greater than MSB, there is a welfare loss (the shaded area).
Adding the indirect tax can move the MPC curve upwards to the MPC +tax curve. The tax reduces the welfare loss, and can even eliminate that if the tax (the difference between MPC and MSC) equals to the negative externality. There is a higher price P1 for the consumers, so the quantity demanded from consumers may decrease from Qe to Qopt. The producer revenue decreases from (Pe*Qe) to (Qopt * Popt). Also, the government gets revenue (the black …show more content…
The government get revenue from the tax, and “generate $1.4 billion a year to fund smoking prevention, research into smoking-related diseases and expanded treatment services for Medi-Cal patients”. The revenue collected from taxation can be used on education and advertisements to prevent public from smoking. The taxation can also be used in researching and developing methods to cure diseases related to smoking. Although “California spends $49 million in tobacco- related healthcare costs”, the situation can be better after the tax is added because the number of cigarettes would decrease in the long
The article is about the Health officials would add $2 tax to packs of cigarettes in California in order to discourage people from smoking to save lives.
One major aim to raise the tax is to reduce the consumption of cigarette because it is a de-merit good which would bring bad impacts on the economy. Second-hand smoking may cause serious illness to people around, so it is considered as negative externality, defined as an activity that imposes a negative effect on the third party. The market for cigarette is an example of market failure. The marginal social benefit MSB is smaller than the marginal private benefit, because the smokers do a harm to the society by harming non-smokers. The difference between marginal social …show more content…
Cigarette is over-consumed by Qe-Qopt units. Since MSC is greater than MSB, there is a welfare loss (the shaded area).
Adding the indirect tax can move the MPC curve upwards to the MPC +tax curve. The tax reduces the welfare loss, and can even eliminate that if the tax (the difference between MPC and MSC) equals to the negative externality. There is a higher price P1 for the consumers, so the quantity demanded from consumers may decrease from Qe to Qopt. The producer revenue decreases from (Pe*Qe) to (Qopt * Popt). Also, the government gets revenue (the black …show more content…
The government get revenue from the tax, and “generate $1.4 billion a year to fund smoking prevention, research into smoking-related diseases and expanded treatment services for Medi-Cal patients”. The revenue collected from taxation can be used on education and advertisements to prevent public from smoking. The taxation can also be used in researching and developing methods to cure diseases related to smoking. Although “California spends $49 million in tobacco- related healthcare costs”, the situation can be better after the tax is added because the number of cigarettes would decrease in the long