Does taxation and negative advertisements impact cigarette demand

Taxation is one of the most typical policies utilized by the government to reduce demand of any product. Fees improve the price of the goods which brings about reduced demand. Goods such as smoking have negative externalities and have an effect on the society all together. Authorities uses such guidelines to reduce such negative externalities and help gain welfare in the contemporary society. To check on whether this assertion is valid my research is based on it. The data I gathered and my research was done in my own area Jogeshwari. This data will be examined and will help me to come to a conclusion. The research includes questions asked to a store also to 60 questions to consumers who frequented his shop. It includes both consumers and producers point of view. My research will also assess if taxation and negative advertisements have any influence on the consumption of smoking and come to a finish based on my research question which is: Does taxation and negative advertisement have any impact on the demand of cigarette smoking in Jogeshwari (west), Mumbai?

According if you ask me an increase in fees should decrease the consumption of smokes as people will have low purchasing electricity so demand will fall. People with low income will be more affected than people with high income therefore to some extent it will prevent market failing. Also this will increase government's earnings to a great level. I also think that negative advertisements is also a sensible way to spread recognition and reduce the consumption of tobacco. People are poor and illiterate in India and so spreading awareness would make them think of lowering consumption of tobacco. This research can help me know a whole lot about the federal government regulations and the negative externalities caused scheduled to smoking. The data will be collected and analyzed to come to a conclusion.

Introduction

Demand for a product is when consumers have willingness and potential to buy that good. The law of demand says that when price reduces demand heightens keeping all the factors continuous (citrus paribus). Resource is the amount of good available for the people in the market. The law of supply says that whenever prices raise the supply improves too keeping all the other factors constant.

Quantity demanded

The graph above shows the relationship between demand and price and offer and price. Demand and price are inversely related while supply and price are directly related. When demand satisfies the resource in market the market is said to be in equilibrium point. At price P the demand equals the source and so equilibrium is gained. Demand and offer are the most important tools in economics. They determine the equilibrium in the market.

There are few goods on the market that will be the exceptions. For example goods like cigarette smoking and liquor. These goods are inelastic goods. The demand doesn't land even when the price increases. There are several negative externalities related to such goods. Externalities is when the marketplace clearing price creates benefits or inflicts costs on an authorized which not a consumer or a developer. Cigarettes when consumed cause negative externalities. It offers several medical issues. Smoking has become more of a fashion in today's world. It is very pleasant for the smokers but it generates a great deal of communal cost. They harm themselves and also to the contemporary society. They incur a lot of exterior cost to the society. This is in the form of passive smoking, using up the health resources that could be used for others for better purposes. "Almost Rs 300 billion from general population and private funds was put in for the treatment of such diseases in 2002-03. " This implies that smoking cause high immediate and indirect cost on the world. Thus also gives high monetary burden to the government and to individuals as this money definitely surpasses the revenue collected by the taxes on cigarettes. There are plenty of such direct factors behind smoking in the world. Articles in mail today says that 10% of world smokers are Indian which is over 12 crores. They say every 3rd Indian smokes with 57% being man and 11% women.

Tobacco use in India among men and women (time 15-49), 2005-2006

3

Through the graph it is very evident males and females in rural area smoke cigars more than urban areas. But these stats include smoking bidis. Matching to me people in cities might be smoking more smoking cigarettes as cigarettes are more costly. People are extremely poor in rural areas and so for them to consume smokes in greater amount won't be affordable. People in rural area consume more cigarette of any form than urban area; this could be because almost all of them are illiterate and are not aware of the consequences of consuming cigarette.

Major reason behind all deathly diseases is smoking. In comparison to a standard person a men cigarette smoker has 23 times more chances of having lung malignancy while a female cigarette smoker has 13 times more chances. It triggers 90% death due to lung tumor in men and 80% in women. You will discover few indirect costs credited to smoking to the population too. Each year around 1 million people perish in India because of smoking. This is very bad for the market of the country as the loss of life caused due to smoking is between the productive age (30-60). Fatality of such teenagers could lead to loss of production and injury the economy as a whole. Also anticipated to loss of life of a man in a family group leads to the burden on the family as he might have been the sole source of income for them.

Economic Theories

These were few of the negative externalities brought on due use of smoking. This may be further examined by using a graph. The graph below shows the negative externalities of ingestion of smokes

Market for cigarettes

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= MPC

Government doesn't only want to decrease the amount of smokers but also to lessen the negative externalities triggered on the third get together of the culture. Invest the smoking, the marginal private benefits (MPB) are greater than the marginal interpersonal benefits (MSB). This may be said because the smokers cross their cost on the culture and the federal government. The exterior costs are overlooked by the consumers and so marginal social gain in lower than marginal private benefits. We can also see in the graph that marginal private cost (MPC) is add up to marginal interpersonal cost (MSC). It's the source curve in the graph. The supply of cigarettes don't cause any problems to the 3rd party therefore MPC = MSC. The marketplace attains a socially ideal point when MSC = MSB when the quantity demanded in Q*. As of this there is absolutely no welfare lost as public cost is add up to social benefit. When the number demanded is Q1 the marginal communal cost is more than marginal interpersonal benefit. Every quantity produced after Q* increase to the negative externality and cause welfare damage to the world due to over allocation of resources.

To address this market failure and improve the welfare of the society federal government could several insurance policies to reduce the demand and use to achieve the cultural optimal point. Firstly government might use the coverage of taxation. It can impose fees on such goods to lessen the demand. When the costs increase the demand falls as stated earlier. I believe imposing tax on cigarettes will be a good option for the government to lessen smoking and and yes it will also increase the revenue of the united states. WHO also recommends countries to raise the tax as it will decrease the health cause and increase efficiency of the folks. "Cigarette taxes take into account roughly 38% of the retail price. This falls well below the rate recommended by the World Bank or investment company (from 65% to 80% of retail price) that is commonly present in countries with effective tobacco control procedures. " The taxes in India on cigarette smoking are very low compared to other countries. This helps it be cheaper and so people consume it more. The costs are not set based on the inflation.

8Affordability of cigarette products in India

You can see from the graph that annually the power of the visitors to buy smoking cigarettes and any form of cigarette has significantly reduced a whole lot. Taxing is an effective way to lessen consumption according if you ask me. Higher price will discourage visitors to smoke and advantage the population. Statistic shows that too
This data shows in India if the taxes are levied on cigarettes it can helps you to save many lives and also improve the revenue. If the taxes are increased to 78% of retail price 4. 7 million people would reduce smoking and 3. 4 million lives would be preserved. It'll give India additional 146. 3 billion rupees. As India is a growing country the majority of the people in the middle school and poor category so upsurge in price would definitely impact them. This theory can even be proved by the graph below

Market for cigarettes

MPC + Taxhttp://anneclaireramser. files. wordpress. com/2010/04/picture-121. png

= MPC

Quantity demanded

The graph shows that due to addition of tax on cigarette smoking the marginal private cost has increased because providers have transferred the burden on the consumers by increasing the price. The MPC thus moves up. MPC now meets MPB at the point where its amount demanded is Q* which is the optimal point. The graph implies that there will not be any welfare damage but it isn't true as people will still smoke and still there will be ailment and unaggressive smoking. Externalities can be reduced but cannot be done completely.

According to me taxing will be effective but not to a great magnitude as smokes are addictive is an inelastic good. Therefore upsurge in the purchase price won't have a major change in the demand for tobacco. By increasing price were just reducing the ability of the visitors to buy cigarette smoking but determination would be unchanged. As we are going through an economic crisis a rise would make it difficult for people to buy tobacco.

Another policy authorities could use to regulate the demand and negative externality is by growing awareness and making people alert to the consequences due of smoking cigarettes. Fifty percent of the loss of life credited to smoking occurs among non informed poor people of India. Placing forward few health issues and problems of early on death and malignancy due to smoking would have a definite influence on the consumption. Matching to me this insurance policy should be more effective as the majority of the Indians in rural areas are illiterate and somewhat than increasing the price if you teach them and inform them about the side effects of smoking there would be an improved result. You can also represent it on the graph and verify it. Because of adverts the MPB would move down as people would eat less now. It will come closer to socially optimum point where MSC is equal to MSB.

The facts and information stated above comes up several questions in your brain of the visitors like, will taxation affects the consumption of cigarettes? The figures and theory show that there will be changes but will that truly happen if the regulations are implied because cigarette is an inelastic good.

Research and analysis

Research: To demonstrate and study the result of taxation on smoking cigarettes I made a research on the local folks of Jogeshwari western. 60 individuals were requested to load the questionnaire and answer few questions (attached at the last site). This data is examined and shown below. The data is analyzed by the answers distributed by few consumers and the retailer of Jogeshwari outside a shop who sells cigarettes. (skillet wala)

Sex of people smoking cigarettes

The pie chart demonstrates 82% (49) of the folks who came up to the store to smoke cigarettes were males and only 18% (11) were females which is comparatively very less. But in line with the latest tobacco atlas, India ranks 3rd in the most notable feminine smoking countries in the world. USA is first with 2. 3 crore and China with 1. 3 crore female smokers but compare to USA and China India has very less feminine smokers significantly less than 20%. Out of the 82% man from all generation bought smoking but it wasn't the same for females. From the 18% everyone was from low income group and poor. The average age was also more than 40+for females.

Age group of usage of cigarettes

As u can see from the above graph that tobacco were consumed by people of every generation but the majority of it was used by the youngster exactly what I expected. Today smoking have grown to be more of a fashion for the children. They try to look cool and anticipated to some peer pressure they take up smoking. As you can see the minimum get older found in the graph is 15 but through the survey I satisfied few students who had been between 13-15 years of age who bought cigarettes. AS I asked the merchant about kids taking on smoking he said lately students smoking at such early on age has increased significantly. My observation was only guys at such small time bought cigarettes but the retailer added declaring that there were few ladies at such early on age too who smoke cigars. "In this group of 13-15 years, 17. 3 % are male smokers and 9. 7 per cent are feminine smokers. " These students are the future of the country and already are creating such negative externalities at this early age. People between 30-45 years also used cigarettes to a significant magnitude. Only people above 45 and mainly old people used more of tobacco and bidi than smoking cigarettes.

The data obviously implies that the people who have income between 20, 000-40, 000 smoke the most. These are middle class people the primary sector of our population. There is not much difference between the low earners, learner and middle income people. As said previous students and kids smoke cigars quite a bit and the desk clearly shows it. There have been only 10 people who got high earnings and emerged to buy cigarettes. It is also possible that this group people may have got it in bulk. Lower income people also consume cigarettes but as per the store they largely buy Indian smokes and not imported. This also demonstrates cigarette is very addictive and people of any income group take in cigarettes.

Amount people spend in a week on cigarettes

Also when asked about their regular spending on smoking cigarettes the answer had not been unusual. This question was related to the income group because people who had high income put in more than 600 on cigarettes. As smokes are cheap in India the majority of the people spent 400-600 rupees. There were many people who spent significantly less than 200 in a week on smoking cigarettes.

My next question to the people was whether they were alert to the dangerous effect cigarettes has on themselves and the modern culture.

When asked if indeed they were alert to the ill effects caused anticipated to smoking more than 50% of individuals knew partly that these were creating negative externality. 30% of the individuals were totally alert to the results of smoking and its own effect and only 13% weren't aware of unaggressive smoking and the negative externality these were causing to the 3rd party. This shows that even though when most of the people know the cultural cost and health cost behind smoking they might still continue smoking. When asked why they don't really stop smoking when they know, they replied stating they are dependent on it and it is very difficult to allow them to give up. This shows the inelasticity of cigarette smoking and folks cannot stop smoking independently so by adding duty and forcing them to pay more would help them reduce smoking.

This leads me to my next question which is; could you reduce utilization of tobacco if the costs increase?

Out of 60 people who were asked if they would reduce smoking if prices increase 50 of these said no and 10 people said yes. As we know the most consumers of smoking are between 15-30 yrs. old people and income group of 20, 000-40, 000 rupees therefore an increase in price wouldn't normally affect them. Only folks of suprisingly low income will certainly reduce smoking cigarettes. WHILE I asked the retailer about reduction in demand if prices increase, he completely rejected it. He said you will see no change and folks will still smoke cigarettes. This shows that the government policy of taxation wouldn't normally be quite effective as people would still continue smoking. Smokes are cheap and increase in price won't have an impact on the consumers. These individuals are ready to pay any amount and this shows that cigarettes are highly inelastic. That is shown in the diagram below

Inelastic demand for cigarettes

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The graph shows the inelastic demand curve of smoking. When the taxes are levied on tobacco the costs have significantly increased from P2 to P1 however the volume demanded by people has changed from Q2 to Q1 which is very less comparatively. This is good for the government in a manner that income gain is more than income loss. The key reason why it is inelastic is basically because smoking cigarettes are addictive and cheap. An increase in cost would decrease the purchasing electricity of folks nonetheless they would purchase it.

Next question was, since how long have they been smoking the data I received was like this

From the graph we can see that most variety of smokers were rookies and this could be as almost all of them were students and young people. People are consuming it for more than 15 years. People are leading to negative externality since very long. Despite the fact that there are more people who are eating cigarettes in recent years from 0 to 5 years but nonetheless there are extensive individuals who are consuming tobacco since very long. Smokers are addicted to cigarette smoking and any increase in price would also have no effect on their consumption as they are long-term consumers. The businesses would make earnings and government could have more revenue.

Also when asked if some of their family members or friends were afflicted by smoking, 12 of them said yes and 48 said no. Only 12 people's members of the family and friends were influenced and so not many people know about the pain smokers go through. People might know the consequences of smoking but a detailed experience or negative advertising will make people more aware of the cultural and health cost of smoking.

This contributes to my next and last question which is, do negative advertising regarding smoking lessen your consumption of cigarette smoking?

The graph demonstrates 22 people would reduce smoking credited to negative advertisement and by making them alert to the negative externality. There are numerous people in rural areas who are incredibly poor and illiterate. They are not aware of the interpersonal cost and health cost. This graph also demonstrates evaluating it with the graph of effect of taxation this insurance policy is more efficient and would give a much better result. There will not be any extra revenue collected by the government but still the use would reduce.

Conclusion

The study above implies that both the policies implied by the federal government to reduce the demand is not very effective. Few consumers and a shop were used to gather data and evaluate them. These results are based on this sample. The aforementioned research proves that the very first coverage of taxation is not so effective since it was struggling to package with the negative externalities brought on in the modern culture. By levying tax on smoking only government has benefits as they get extremely high income. Rather than lowering the negative externality it is becoming for as an earnings for the federal government. This research creates few questions in the mind of the visitors like; is taxation actually a good policy to reduce usage? Is it good for the united states if the federal government is acquiring high earnings? Will this income be utilized for the betterment of the country? Such questions keep arising. We've also noticed that cigarette is inelastic therefore consumers are consuming whatever happens because of their private benefits regardless of the cultural cost while makers are just enjoying the gains. We have also come across that smoking among children have become very common. They will be the future of the country and this won't help in the development of our country. The next coverage of negative advertisements is also not effective needlessly to say. The insurance policy was still more favored by the folks. This insurance policy was more successful of lowering the negative externalities. There is absolutely no profit for the federal government in this policy which was because of the poverty in India.

India is a producing country and if we continue steadily to only think about the private benefits it will be problematic for us to grow. Private firms are considering their profit, federal too is happy with high earnings while no person is considered about how exactly to lessen the welfare loss in the modern culture. Within this research the theories were proved wrong because taxation didn't have much effect on the consumers and same with adverts. Government should come up with new policies to deal with such in flexible goods. The sample data was gathered by 60 people which is very small to come to a strong summary.

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