Around to increase the price for cigarette packets by$2.50

Around the world from the turn of the century, there were hundreds ofmillions of regular tobacco users. Then, the cigarette industry flourished as boomingdemand for cheap tobacco skyrocketed to all-time highs. Now cigarettes are marked acause of market failure due to its nature as a demerit goods. Where the oversupply ofa demerit good is considered a market failure due to its negative externalities ofconsumption. New York is one major metropolis taking action in reducing thenegative externalities of cigarette consumption through municipal policies. New YorkCity’s mayor, Bill de Blasio, decided to increase the price for cigarette packets by$2.50 from $10.50 to $13 by imposing indirect taxes. They are also planning to beginan anti-smoking campaign. But there are certain impacts that hindering theconsumption of a good like cigarettes can have on the economy. But to what extentdoes government intervention in prohibiting cigarette consumption impact theeconomy?Market failure is a situation where markets do not efficiently nor effectivelyallocate its available resources. In the present case. an oversupply and overconsumption of a demerit good, cigarettes, is the root of the market failure. Thegovernment will have no choice but to interfere with this case. One way they can dothis is by imposing an indirect tax, which will push producers to increase prices inorder to keep their profits. As the law of demand states, as price increases, demanddecreases. The government hopes that increasing cigarette prices will force them tostop consumption of that good. However, one must take into account the addictionfactor; people who regularly consume cigarettes are prone to addiction, this willprompt them to buy cigarettes with disregard to the effect it may have on otheraspects of their lives. This is where a second measure must come into place.Anti-smoking campaigns are becoming increasingly common in mostcountries. A prominent example being Australia with negative advertising involvinggraphic images of cancer-stricken lungs and dead bodies that advocate a strongmessage against smoking, pitching the ‘Smoking Kills’ line. Showing provocativeimagery will push smokers to reconsider before smoking another cigarette.Below, figure 1, is an illustration of the impacts on society in terms of marginal socialcost and marginal private cost.