Unit 5

Question 1

cigarette negative correlation

Answer 1

as price goes up, demand goes down

Question 2

What is the highest taxed good?

Answer 2

Cigarettes

Question 3

Inferior good / normal good

Answer 3

as you buy more, you buy less of it; as income goes up, demand for the good goes up (e.g. cigarettes)

Question 4

cigarette positive correlation

Answer 4

as family income increases, people are more likely to buy cigs

Question 5

Failures in regulating cigarettes

Answer 5

1. externalities
2. lack of information
3. irrational consumers

Question 6

Externalities as a market failure

Answer 6

2 parties exchanged in transaction and a 2rd party is effected (low for smoking; hard to justify $10 for tax)

example: smokers are more likely to start a fire or second hand smoking

Question 7

Lack of information as a market failure

Answer 7

higher rate of smoking because people are not informed

Question 8

risk belief

Answer 8

peoples belief of how much something puts you at risk

example: study showed that smokers don’t think smoking is as bad for you as nonsmokers; US is over-informed about overstates risk of smoking

Question 9

irrational consumers as a market failure

Answer 9

Its not always not smoking is irrational; we all do things that are not healthy (not trying to maximize healthy, trying to maximize utility) ;

*People maximize their utility not their health

Question 10

rational consumers as a market failure

Answer 10

when it was announced that there would be an increase in cigarette tax in the future, people stopped smoking now

Question 11

Paternalism

Answer 11

are we doing what makes people better off vs. what we want people to actually do; can be dangerous

Question 12

What tools/policies do we have to stop smoking?

Answer 12

1. Information (surgeon general’s report)
2. . Taxes (proven effective)
3. Anti-smoking tools (lobbying and ads cessation products can work)
4. bans on smoking in public areas (hard to ban at home and demonizes smokers in public)

Question 13

Problems/consequences associated with smoking policies

Answer 13

1. unintended consequences
2. e-cigarettes
3. weight gain
4. consumption of other things
5. loop holes
6. aggressive taxes

Question 14

unintended consequences of smoking

Answer 14

if we make cigs more expensive to consume, people will smoke each cig more intensely (more regular drags; consume more intensely)

Question 15

unintended consequence of smoking ban

Answer 15

1. only place to smoke is at home –> second hand smoke in kids
2. increase consumption of alcohol, weed, illegal drugs

Question 16

what does e-cigarettes do relative to consumption of traditional cigs?

Answer 16

a. Increase of price of e-cigs, consumption of e-cigs go down (sales per 100,000 adults)
b. Increase of price of e-cigs, consumption of traditional cigs group (sales per 100,000 adults)
c. Increase of price of traditional cigs, consumption of e-cigs group (sales per 100,000 adults)
d. Example: Raise price of cigs – consumer alcohol, raise price of alcohol – consume weed, raise price of weed – come illegal drugs)

Question 17

relation of stopping smoking and weight gain

Answer 17

People who are assigned to quit smoking treatment, decreased rate of smoking and their BMI went up more than the control group

Question 18

Loop holes

Answer 18

Any time rules are put into place, people are going to try to find their way around the rule.

Some loop are harder to close: boarding crossings

Question 19

Boarding crossing loophole

Answer 19

when tax rates goes up in my state then go to crossing boarders to get cigs in another state for less (bulk buying)

Question 20

progressive taxes

Answer 20

Higher income people pay more of the tax than lower income people. With income tax, for example, the tax rate is adjusted so that the more money a person makes, the more they pay in taxes; pay more tax the higher your income is

Question 21

regressive taxes

Answer 21

lower income people pay more of the tax than higher income people. A flat tax is placed on a good that is the same for anyone who purchases it. Therefore, the more money that a person makes, the lower the percentage of income that this purchase depletes; most common type of tax; used to discourage people to use product (cigs); taxes are inequitable