Summary: Smoking In China

The Chinese government has well understood the damages which the supply of a demerit good such as tobacco can cause to the citizens and the economy in a whole. Smoking brings about what economists will call a market failure. “Market failure occurs when the market is allocatively inefficient, resulting in the over-allocation of resources or under-allocation of resources” (The meaning of market failure - IB Guides). From the article, about a million of Chinese pass away every year due to smoking, not to talk of the ones affected by diseases such as lung cancer amongst other diseases. Equally, when individuals smoke, there are adverse effects on third parties around them. This is a negative externality of consumption. The diagrammatic illustration

Smokers over-consume cigarettes by smoking Q1 cigarettes at a price P1 instead of Qe and Pe respectively. Hence, the marginal social cost ends up being greater than the marginal social benefit for these units and the welfare loss is represented by the area shaded in the diagram. This is a market failure.

The Chinese authorities can undertake several actions to reduce or even do away with this market failure and the different actions will have different levels of impact. The Chinese government could simply ban the consumption of Cigarettes in the economy. This banning policy has been applied in certain places such as bars and restaurants. However, being the world’s biggest producer of tobacco, the complete banning of this good everywhere would greatly affect the tobacco industry in the country as there will be a considerable fall in the demand for tobacco products. To reduce the smoking rate, the authorities in Hong Kong have decided to place a Tax on cigarettes (tobacco). This tax obviously increases the cost of production of tobacco and the producers will be obliged to transfer the burden to the consumers of tobacco in the form of

They will do this in an attempt to reduce the demand for cigarettes at the national level. With the nearly 300 million smokers in China, a huge budget is needed to organise such campaigns. Hence the authorities can get some money from the revenues collected from taxes which from the anonymous source from the article would be estimated at 20million Yuan in order to organise successful campaigns. A persistent consumption of smoke is very likely of affect an economy in different ways. In my opinion, while a complete ban on cigarette smoking will not be best way to control smoking in China, they have to strictly implement taxes in the smoking industry. Smoking is very injurious to the health of everyone. So the Chinese government has to eliminate this very intelligently in an attempt to allocate resources optimally for their economy to continue