States+consider+cigarette+tax+hike

State considers cigarette tax hike

source: http://www.usatoday.com/news/nation/2002/01/14/usat-cigtax.htm

summary:

The ever on going battle between Americans and cigarettes continues. Washington state recently increased in November approving a 60 cent increase per pack of cigarettes. Cigarettes now cost 1.425 dollars a pack. The article starts off by describing microeconomics in this case Washington state. Federal taxes are also targeting tobacco prices raising it from 5 cents to 36 cents, I major increase. This is macroeconomics since it effects the united states as a whole. The purpose of this increase in prices of cigarettes is to decrease the demand for them. This is obviously hard because cigarettes have a very low elasticity, meaning the quantity demanded is unlikely to be effected by price changes. The US is drastically trying to increase the prices to get smokers to quit. This in turn effects the factors of production of the tobacco companies, since everything related to cigarettes has a tax increase it would cost more to produce cigarettes. Land to grow tobacco would be more expensive, taxes directly placed on the cigarettes would cause less people to buy them causing the companies to lose money and therefore effect labor. This ultimately effects the supply of cigarettes because they cant keep up their original production rate. The determinant in this case is government intervention. The government is the one placing the taxes on cigarettes to decrease the demand for cigarettes. Even if the demand does not change, and the consumers continue to buy, the state would get the cigarette tax money. In 2001 the state earned 244.5 million dollars from cigarette taxes. However people have been finding ways around the taxes. Some people buy cigarettes off the internet or bring cigarettes back from other states. In many ways the quantity demanded for cigarettes haven’t changed as much as people hoped.

Definitions: 1. Microeconomics: A branch of economics that studies the behavior of individual firms or companies make as to how they best allocate scarce resources. 2. Macro economics: a branch of economics that focuses on all firms or companies. The overall economic picture. 3. Factors of Production: Everything needed to run an economy or business, there are four main categories: land, labor, capital, management. 4. Supply: how much a certain person or place can produce provided with the necessary materials. 5. Demand: the desire of purchasers, consumers, clients, employers for a particular commodity or service. 6. Increase in Supply: Increase in total output of a market, caused by a determinant of supply and not by a change in price 7. Change in Quantity Demanded: A change in how much consumer is willing and able to buy, as a result of a change in price.

Graph: as prices increase the QUANTITY demanded falls, but the demand goes up.

evaluation: I agree with what the government is doing. Even though Cigarettes are a low elastic good it doesn’t mean taxes wont put a sizable dent in it. The benefits from placing taxes largely overweigh the disadvantages. Millions of dollars are wasted in medical bills because of cigarette related sicknesses. Many smokers want to stop smoking, they just don’t have enough incentive to stop. An increase in prices will provide the necessary push to stop many from smoking. It may not have an immediate effect, but it will take a toll eventually. The demand for cigarettes will decrease along with the quantity demanded.