Diminishing returns for Tobacco

 

 

I totally agree with the point in article “The diminishing returns to tobacco legislation” that the point of diminishing returns for tobacco products is over and the further aggressive intervention would have a contrary effect. Because of its addictive nature the demand elasticity of tobacco products, especially cigarettes, is relatively low at about 0.4 to 0.6. For that inelastic demand the rising prices could lead to higher revenue (in our graph from R1 to R2). That was used by the governments as the guide for imposing the high taxes on tobacco. We can see it the example of the demand and supply curve. For inelastic demand the big jump in price could lead to only small reduction of the quantity demanded. We can see it from the graph.

But there always is the point on the demand curve after which the revenue is diminishing. In the article there are some reasons why that happened in tobacco consumption. When the prices started to grow there was some percentage of people who were at the point that it caused them to reduce smoking or quit like youth, low-income smokers who started to smoke recently and those who wanted to quit. Together with the goal achieved the high price on cigarettes brought higher revenue to the government. But the elasticity curve is different from demand curve in the terms that it is always more elastic at the beginning and inelastic at the end. There is always the unitary elastic point in between them where the revenue is the highest. That was the spot which the government achieved. Next steps were not so successful because the curve was in the different part of the elastic curve. That is illustrated in the article by the following data: from 1985 to 1995 in the United States, real prices of tobacco products increased by some 52 percent, mainly because of taxes, while cigarette consumption dropped by 18 percent; from 1995 to 1999, real prices jumped by another 48 percent, but consumption receded by only 11 percent. And as we can see the next increase of taxes will give even smaller effect.

The understanding of that caused the government to use the regulatory power like prohibition of smoking in public places, warnings on cigarette packs, prohibition to display tobacco products in the stores, etc.

But all these precautions can cause opposite effect because when we do something too much the society is trying to protest against it. That is the problem the government faces. There are already facts of illegal cigarettes contraband from other less regulated countries or, what is even worse, the attempt to substitute tobacco products by marijuana.

One of the possibilities to improve the health of the nation could be the proper education at the schools, developing the role models for children.

 The example from my life could be the story of my husband’s school years. All teens are facing the times when they are listening only themselves in attempts to be more independent. My husband’s dad one day brought him to the pub where all alcoholics in the city were gathering. He showed him it and just asked: “Do you think this is the life they were dreaming for? No, they just become addictive to the bad habit.” It feels too harsh for me and I never had that kind of experience but apparently this is the life and teens should know all the consequences to be able to choose the right values. It definitely should be more gently but one real story can do more than thousand words.