Unit 5 Flashcards
cigarette negative correlation
as price goes up, demand goes down
What is the highest taxed good?
Cigarettes
Inferior good / normal good
as you buy more, you buy less of it; as income goes up, demand for the good goes up (e.g. cigarettes)
cigarette positive correlation
as family income increases, people are more likely to buy cigs
Failures in regulating cigarettes
- externalities
- lack of information
- irrational consumers
Externalities as a market failure
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
Lack of information as a market failure
higher rate of smoking because people are not informed
risk belief
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
irrational consumers as a market failure
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
rational consumers as a market failure
when it was announced that there would be an increase in cigarette tax in the future, people stopped smoking now
Paternalism
are we doing what makes people better off vs. what we want people to actually do; can be dangerous
What tools/policies do we have to stop smoking?
- Information (surgeon general’s report)
- . Taxes (proven effective)
- Anti-smoking tools (lobbying and ads cessation products can work)
- bans on smoking in public areas (hard to ban at home and demonizes smokers in public)
Problems/consequences associated with smoking policies
- unintended consequences
- e-cigarettes
- weight gain
- consumption of other things
- loop holes
- aggressive taxes
unintended consequences of smoking
if we make cigs more expensive to consume, people will smoke each cig more intensely (more regular drags; consume more intensely)
unintended consequence of smoking ban
- only place to smoke is at home –> second hand smoke in kids
- increase consumption of alcohol, weed, illegal drugs
what does e-cigarettes do relative to consumption of traditional cigs?
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)
relation of stopping smoking and weight gain
People who are assigned to quit smoking treatment, decreased rate of smoking and their BMI went up more than the control group
Loop holes
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
Boarding crossing loophole
when tax rates goes up in my state then go to crossing boarders to get cigs in another state for less (bulk buying)
progressive taxes
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
regressive taxes
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
