Assignment

Unit Three Assignment

Read the article 'Deterring Young Smokers and review the website below:

http://www.tobaccofreekids.org/facts_issues/fact_sheets/policies/

http://www.tobaccofreekids.org/facts_issues/fact_sheets

Why is the price elasticity of demand for cigarettes among teenagers greater than it is among those 20 and over?

Write a brief essay on your opinion why or why not taxes should be used to decrease the use of tobacco. Include the information from the website. (Essay should not be more than one or two pages.)

Deterring Young Smokers

As the U.S. Surgeon General warns on each pack of cigarettes, smoking can be hazardous to your health. Researchers estimate that smoking kills 440,000 Americans a year-ten times the fatalities from traffic accidents. Smoking is the overwhelming cause of lung cancer, which is the top cancer killer among women. Four of five people with lung cancer die within three years. Smoking is also the leading cause of heart disease, emphysema, and stroke.

According to the U.S. Centers for Disease Control and Prevention, each pack of cigarettes sold in the United States costs society $7.18 in higher health care costs and in lost worker productivity. The added cost exceeds $150 billion a year, which works out to be about $3,400 per smoker per year.

Thus, smoking imposes major health and economic costs. Policy makers try to reduce these costs by discouraging smoking, especiallly among young people. About one in four U.S. high school students were smokers in 2005, the same rate as in 2003. Each day, about 3,000 U.S. teens under 18 become regular smokers. Worldwide, an estimated 100,000 teens become regular smokers each day.

One way to reduce youth smoking is to prohibit the sale of cigarettes to minors. A second way is to raise the price is through higher cigarette taxes. The amount by which a given price hike reduces teen smoking depends on the price elasticity of demand. This elasticity is higher for teens than for adults. Why are teenagers more sensitive to price changes than adults? First, recall that one factor affecting elasticity is the importance of the item in the consumer's budget. Because teen income is relatively low, the share spent on cigarettes usually exceeds the share spent by adult smokers. Second, peer pressure shapes a young person's decision to smoke more than an adult's decision to continue smoking (if anything, adults face negative peer pressure for smoking). Thus, the effect of a higher price gets magnified among young smokers because that higher price also reduces smoking by peers. With fewer peers smoking, teens face less pressure to smoke. And third, young people not yet addicted to nicotine are more sensitive to price increases than are adult smokers, who are more likely to be already hooked. The experience from other countries supports the effectiveness of higher cigarette taxes in reducing teen smoking. For example, a large tax increase on cigarettes in Canada cut youth smoking by two-thirds.

Another way to reduce smoking is to change consumer tastes through health warnings on packages. In Canada, these warnings include photos showing how smoking can affect the brain, teeth, and gums, and a wilted cigarette depicts male impotence. In Australia, labels show gangrenous limbs, underweight babies, cancerous mouths, and blind eyes. Belgium adds corpses to the picture. In California, a combination of higher cigarette taxes and an ambitious awareness program contributed to a 5 percent decline in lung cancer among women, even as it rose 13 percent in the rest of the country. (As of 2007, state taxes varied from a low of 7 cents per pack in South Carolina to a high of $2.58 in New Jersey.)

More generally, the message about the dangers of smoking along with the higher cost of cigarettes  has had an effect over time. Only about 20 percent of American adults now smoke, down from more than half in the 1960s.

SOURCES: John Tauras, "An Empirical Analysis of Adult Cigarette Demand," Eastern Economic Journal, Vol. 31, No. 3 (Summer 2005): pp. 361-375; Phillip Cook and Rebecca Hutchinson, "Smoke Signals: Adolescent Smoking and School Continuation," NBER Working Paper 12462, (August 2006); and Hana Ross and Frank Chaloupka, "The Effects of Public Policies and Prices on Youth Smoking," Southern Economic Journal (April 2004).