Negative Externality Of Smoking

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The article ' 'Smokers to pay more for cigarettes as tobacco taxes rise by 13.7 per cent ' ' was published on Monday, 1 Sep 2014. It is about an indirect tax imposed on cigarettes. The price for cigarettes rose because the government imposed a 13.7 per cent tax. Price for cigarettes in Australia is higher than in most countries and the article estimates that by 2016, one cigarettes will cost $1. This will give the government about $13 from every packet sold. This article perfectly shows an example of a negative externality of consumption and the actions that the government takes in order to reduce the negative externality. Negative externality is one kind of the market failure. This means that the resources are not allocatively efficient resulting in MPB (marginal private benefit) being higher than MSB (marginal social benefit). The socially efficient level of consumption, MSB=MSC, is therefore not reached. When MSB=MSC, the benefit to the society equals the social cost When there is a negative externality of consumption, MPB (marginal private benefit) is higher than MSB (marginal social benefit). This means that there is more benefit to the
Diagram 1 individuals who smoke than to a society. When a person smokes, he receives a satisfaction; however people around him, who are forced to breathe the smoke, do not
P receive a benefit. In fact, there is a damage to those, who are exposed to secondhand
Q smoking. It is also known as third parties. The cost to the third party

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