In the case of smoking cigarettes, hookahs and electronic cigarettes, the smokers will not think about the effect of passive smoking on children and adults which can cause asthma. This means consumers will maximize their utility and consume at the quantity of Q1, where the marginal social costs equal the marginal private benefits, rather than the socially desirable level of Q2, where the marginal social benefits equal the marginal social costs. This results in a welfare loss to the society (children and passive smokers), as shown by the blue, shaded area.
Government intervention is defined as actions on the part of the government that affect activity. The government can intervene in many ways, all of which have advantages and disadvantages. The government need to put an indirect taxes on other smoking devices such as hookahs and electronic cigarette in order to reduce the quantity demanded but they need to put a significant amount of tax in order to see the change since cigarette is highly inelastic.
In the case of smoking cigarettes, hookahs and electronic cigarettes, the smokers will not think about the effect of passive smoking on children and adults which can cause asthma. This means consumers will maximize their utility and consume at the quantity of Q1, where the marginal social costs equal the marginal private benefits, rather than the socially desirable level of Q2, where the marginal social benefits equal the marginal social costs. This results in a welfare loss to the society (children and passive smokers), as shown by the blue, shaded area.Government intervention is defined as actions on the part of the government that affect activity. The government can intervene in many ways, all of which have advantages and disadvantages. The government need to put an indirect taxes on other smoking devices such as hookahs and electronic cigarette in order to reduce the quantity demanded but they need to put a significant amount of tax in order to see the change since cigarette is highly inelastic.
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