ECO401 Economics GDB Solution Fall 2012

Smoking is one of the leading causes of preventable death. According to World Health Organization (WHO) report, tobacco use is currently responsible for the death of one in ten adults’ worldwide. Individuals who smoke cigarettes are 12 times more likely to die from lung cancer, two to four times more likely to develop coronary heart disease, twice as likely to have a stroke, and 10 times more likely to die from prolonged obstructive lung disease. In Pakistan, it is estimated that the frequency of tobacco smoking is 36% for males and 9% for females. Among young adults especially the university students in Pakistan, the frequency of smoking is 15% with the majority being male smokers. Approximately 1,200 children start smoking every day. This shows a huge impact not only in terms of economic costs but it is slowly depriving the country of a healthy workforce and increasing the burden of disease in the already overburdened health sector. The low prices of cigarettes and easy access for all ages amongst other factors have resulted in an increase in annual consumption from 292 cigarettes per capita in 1994 to 406 cigarettes per capita in 2007. Many ways have been suggested to reduce the use of cigarettes for all ages. One of the effective strategies recommended to reduce the use of cigarettes is to impose heavy taxes on cigarettes packs by government.

Requirement:

Being a student of Economics, analyze the above situation and answer that is it best strategy to impose heavy taxes on cigarettes packs to discourage people from smoking?

Give your answer with proper reasoning, by keeping in view an appropriate concept of Economics.

Solution:

Yes according to my thought it is a good strategy to apply heavy tax on tobacco business for stopping people from smoking. But in some ways this strategy is not useful. I can justify my answer with the help of following reasons.

1. Applying heavy taxes on tobacco business can raise only the prices of tobacco. High prices can stop only poor people from smoking. It will be only possible when the cost of tobacco will be so high that it can not be affordable.

2. Although the prices of tobacco can be raise by applying heavy taxes on tobacco but it can not effectively decrease the interest of people in smoking.

3. People will raise their expenses on tobacco.

4. It is compulsory to apply such strategy which decrease the interest of people in smoking.

5. This strategy should be affordability related and also interest related which discourage people from smoking.

6. On the other hand it is appropriate to apply different strategies for students and for other people.



Another Solution:

  • Higher tobacco taxes will hurt the economy.

Tax increases will lead to significant reductions in employment in tobacco growing and manufacturing, as well as more general wholesale, retail, and other economic sectors. Consequently, the tax increases will have an adverse impact on the entire economy.

  • Higher tobacco taxes will increase smuggling.

Tax increases on tobacco products will lead to increased smuggling, illegal cigarette production, and related criminal activity.

  • Higher cigarette taxes will encourage smokers to switch to cheaper cigarette brands and/or other tobacco products to avoid taxes.

Smokers will switch to cheaper brands or cheaper tobacco products. There will be no overall reduction in tobacco use.

 

  • Tax rates are already too high.

Most countries already have very high rates of taxes on tobacco products.

  • Tobacco companies agree with sensible industry regulation, including small and predictable tax increases that do not encourage smuggling.
  •  Higher tobacco taxes will reduce tax revenues.

The reductions in tobacco sales caused by tax increases will be so large that it will offset the impact of the increased tax rate

  • Higher tobacco taxes will hurt the poor.

Tobacco tax increases are regressive and fall disproportionately on the poor. Poor people have only few pleasures, and higher taxes will make tobacco unaffordable to them.

  • Higher tobacco taxes punish tobacco users.

Tobacco is a pleasure to use. Raising tobacco taxes means tobacco users will pay more money for their pleasure.

  • Higher tobacco taxes will not reduce tobacco use.

Since tobacco addiction is very strong, higher prices will not impact demand; therefore raising taxes is not justified.

 Governments interfere with consumers’ freedom of choice when they tax tobacco and discourage use. Governments’ responsibility should end with making the risks of tobacco use widely known to people
Another Solution:



According my point of view the heavy taxes on cigarettes industry is not the solution of the problem. Following are the ideas to reduce the size of smoking.

 

  1. 1.     govt limit the area of Tobacco crop
  2. 2.     If the Govt. increases the taxes on Tobacco industries, then peoples engage ourselves and spend more income for smoking.
  3. 3.     To stop smoking Govt. try to develop concept and  advertise the dangerous effect of the smoking, etc lung cancer, coronary heart disease, prolonged obstructive lung disease, kidney fail, Nicotine acts like a key that unlocks nicotine receptors in the brain, etc which leading the causes of preventable death in the world.
  4. 4.     Govt. advertises through Electronic media, print media,  Health Department the death effect of the smoking
  5. 5.     The Govt. bane the smoking advertisement.
  6. 6.       Govt., organization, universities, schools, and on public places bane the smoking.
  7. 7.     Shopkeeper’s, sale the cigarettes only adult.

 

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