Question

Read the following article: Mayor de Blasio signs bill to hike cigarette pack price to $13 minimum, reduce smoking http://www.nydailynews.com/new-york/de-blasio-signs-bill-hike-cigarette-pack-price-13-minimurm article-1.3449275 Cigarettes have long been recognized as an inelastic and an inferior good. Therefore, does this law make sense from this standpoint only?Why or why not? Could there be otherways to reduce smoking other than raising taxes?

Answer 1

No, this law does not make sense from this standpoint.

Cigarette is a price inelastic product this means increase in price have no effect on quantity demanded. This means increasing prices will not ensure thay people may quit smoking.

However, the price hike will increase the burden on low income group people. As they are more likely to smoke they will cut back on consumption of other items such as bread milk to compensate for this price hike.

Conclusion: This law may not be effective in reducing smoking. People who can afford at $13 price will continue to buy the cigarette and those who cannot afford will simply cut off the consumption of other items so that they can spend on cigarettes and may not quit smoking at all.

Other ways of reducing smoking can be:

1. Reducing Supply: By cutting down the number of places to buy cigarettes prevents people from getting cigarettes at anytime and anywhere. This may reduce the consumption of smoking.

2. Raising taxes: Raising taxes on cigarettes will help government raise revenue, which can be spent on social programmes that promotes quit smoking. With this extra revenue govt can help provide medications like nicotine to poor people for free who wants to quit smoking.

3. Limit: By setting a limit on the sale of cigarettes will decrease smoking. For example say a store will be allowed to sale only 300 boxes of cigarettes a month only and that too to people of age above 18. So that students won't be able to purchase and then consume.

4. Awareness: By raising awareness regarding harmful effects of smoking through campaigns.

5. Rehab Centres: By opening more rehab centers which provide healthcare at cheaper rates, government can help people quit smoking.