Unit 5A: Exercise 5-3 Law of Diminishing Returns

The Diminishing Returns to Tobacco Legislation
·         Decide which points in the debate have merit.

o   The numerous and visible warnings tend to be discounted or ignored over time.

o   Burdensome taxes and regulations  will increase smuggling activity.

o   There seems to be a correlation between taxation increases and decreases in cigarette consumption.

·         Decide which points lessen the debate.

o   The fact that Quebec entrepreneurs do not abide by the Canadian warning legislation and provide neutral drawings on their packages.

·         In words, estimate the point of diminishing returns for the government.

o   Government warnings and regulations have been in place on Canadian cigarettes for at least ten years. The effect of these campaigns have reached their point of diminishing returns as those who have had the desire to quit already have; those who have not may have curbed consumption due to taxes.

·         What are some other solutions that would increase the government’s production (success) compared to their costs, thus lessening their diminishing returns?

o   Mild forms of prohibition – what these could be other than an out right ban, who knows as a majority of Federal, Provincial and Municipalities have already adopted prohibitive measures such as smoking indoors, some public places and as of late in vehicles with children on board.

o   Dismantling of the private, for-profit, tobacco industry, and its replacement with a sort of public utility that would sell cigarettes in plain wrappers at cost as proposed by the US Food & Drug Administration.

o   Increased taxation on manufacturers of tobacco products.

·         What implications are there in this article for the supply and demand of tobacco (Chapter 2 and 3)?

o   The conclusion I draw from this article is that cigarette smoking tends to be an inelastic product do to the fact that regardless of the price increasing do to taxation a majority of smokers continue with their habit due to the lack of substitutes (supply would marginally decrease however overall demand would not be significantly impacted).

·         Explain the debate in terms of sin taxes (Chapter 4).

o   Sin taxes are levied against products that tend to have public disapproval such as cigarettes and alcohol. The article outlines how the government implementation of taxation plays a direct role in the diminishing rate of return.

Article Link: http://www.pierrelemieux.org/artdiminish.html