Exercise 5-3: Law of Diminishing Returns

According to Pierre Lemieux,

  Pierre Lemieux definitely made some very good points in this article and some points could need little bit more explanation. When from 1985 – 1995 in United States the prices of tobacco increased by 52% and most of the increase was based on taxes collected by the government on cigarettes the consumption of cigarettes dropped by 18% and again when taxes on cigarettes were increased from 1995 – 1999 by 48% the cigarettes consumption dropped by another 11%. Clearly from this we could state that if government keeps on increasing the tax on the cigarettes the consumption would keep on dropping but this is not the case. As government had already hit law of diminishing return on tobacco by increasing he price few times. When the prices are increased the very first time, its easiest to see the result as people who are not very addicted to the product are the first to quit when they feel price is getting out of their budget bracket. Any further increases in price after that targets the group of people who are addicted to the product and in some cases will do anything to buy it. So collecting more taxes will simply mean that if these addicted people can’t afford the product they will do crimes to make money. Hence increase the crime rate.

Therefore, Just increasing the price is not the solution so European Union forced tobacco manufacturers to print on the cigarettes pack colored pictures illustrating presumed effects of tobacco.  To keep the anti-smoking momentum I feel this is needed as it creates awareness in the minds of the seasoned consumers and provide knowledge and warning to new consumers who can afford the product but are still not addicted to it. Increasing the size of warning to the pack to me is not the sign of diminishing return for the government. I feel to keep the momentum alive and more people to consider quitting smoking more education and awareness is needed among the users and one way to do that is more explicit pictures and warnings on the pack, further I feel it stops more youngsters from trying the cigarettes and eventually becoming addict.
Some other solutions that government can consider to keep up the anti-smoking momentum are; to ban smoking from all public places, ban smoking from pubs,  restaurants and other party places. Enforce fines for people who are caught smoking in public. Increase more awareness among smokers for side effects of smoking. Use the sin tax money to promote campaigns and research to help people quit who are willing to quit but are forced to smoke because of their addiction. In the end, raising taxes on cigarettes work but only to some extent and government effect will reach diminishing return unless they keep looking different alternatives and ways and keep bringing new policies to the momentum. Making smoking illegal will also not work as it will create another window for drug smuggling, forcing government to spend even more money to fight that.