Many governments around the world have implemented heavy taxes on cigarettes and other tobacco...

Question

Many governments around the world have implemented heavy taxes on cigarettes and other tobacco products in order to reduce the number of smokers. You are required to write an essay to critically evaluate the effectiveness of this policy. Make sure that you clearly address the following questions in your analysis:

1) Using the supply and demand model explain how a tax could reduce the sales of cigarettes.

2) Explain whether the demand for cigarettes is elastic or inelastic.

3) Compare the tax to alternative policies such as a price floor or education campaign.

4) Critically evaluate the effectiveness of the cigarette tax as a policy in reducing the number of smokers.

Robert · Accepted Answer

Introduction:  
According to recent estimate of WHO, cigarettes and other tobacco causes 7 million people each 
year. Approximately 6 million people die globally due to direct tobacco use whereas 890,000 are 
killed due to exposure of second hand smoking. (WHO 2017) Smoking is the largest cause of 
preventable death globally as it causes lung cancer, hearth attack, high blood pressure and many 
other dreadful diseases. While the smoker is directly exposed to health risk and life threatening 
diseases, the people in close vicinity to smokers are also exposed to several health hazards. 
Smoking and tobacco consumption is a huge threat to global health.  Policymakers and 
governments across the world are struggling to devise the suitable strategy to reduce tobacco 
related death and other problems. Imposition of tax is a proposed solution – government can 
impose tax to reduce the consumption. (WHO 2017) 
The essay provides a deep insight on the effectiveness of tax policy on tobacco consumption.  
1) Using the supply and demand model explain how a tax could reduce the sales of 
cigarettes. 
We can explain the impact and incidence of taxation on cigarettes with the help of demand and 
supply diagram:
DD and SS are the demand and supply curve for Cigarettes before the imposition of taxes.  E0 is 
the equilibrium point with P0 as equilibrium price and Q0 as equilibrium quantity. 
After the imposition of Tax t, the supply curve for cigarettes will shift to the left. The market will 
reach to a new equilibrium E1.  Equilibrium price will rise from P0 to p1 and equilibrium 
quantity will drop from Q0 to Q1. 
So an effective tax policy will lead to increase the price of the tobacco products and make them 
less affordable to its consumers.  
An increase in price will result some users to quit, prevent potential users to start this habit, some 
regular users will reduce the consumption of smoking and some will shift to cheaper alternatives.  
2) Explain whether the demand for cigarettes is elastic or inelastic.

Many governments around the world have implemented heavy taxes on cigarettes and other tobacco products in order to reduce the number of smokers. You are required to write an essay to critically...

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