The article: http://www.bbc.co.uk/news/health-21067532
This article talks about how the “number of children admitted to hospital with severe asthma” has decreased by 12% in the first year after the ban on smoking in public places. It is also thought that people are opting for smoke – free homes as well, further reducing the negative externalities of consumption that are generated by smoking.
An externality occurs when the production or consumption of a product has an effect on a third party. Although the externality that is generated can be positive, the externalities of consumption generated by smoking are all negative, and this is one of the biggest examples of a negative externality of consumption.
When consuming a product, if negative externalities are produced, it will mean that the marginal social benefits are less than the marginal private benefits. The consumers are will not think about the negative effects that the consumption will have on third parties, they will only think about the benefits/costs to them. In the case of smoking, the smokers will not think about the effect of passive smoking on children which can cause asthma, but of the benefits to themselves. This means consumers will maximise 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 Q*, where the marginal social benefits equal the marginal social costs. This results in a welfare loss to society, as shown by the blue, shaded area.
The article outlines how after the government intervened, the effect of the negative externality of smoking decreased by 12% in the first year. 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 could ban smoking altogether. The effects of this can be shown on a diagram.
In the diagram, the ban on smoking has shifted the Marginal Private Benefit Curve to the left, meaning it is closer to, or meets, the socially desirable level of Q*. This would obviously reduce the negative externalities generated by smoking, and the effects of those negative externalities, including the reduction of cases of serious asthma in children.
Although this is likely to stop many people smoking, it has very many disadvantages. Firstly, it would have a huge effect on the tobacco industry, and the revenue made by the government from selling cigarettes, and due to the inelastic demand for cigarettes, it is likely to make people very angry, meaning the government will lose many voters. It could also result in a black market for cigarettes, where they are sold illegally for higher prices. Due to this it is not in the government’s best interests to completely ban smoking; however some governments do compromise by placing partial bans on cigarettes, as is described in the article. This partial ban has been shown in the article to have had a positive effect, reducing the cases of serious asthma in children, and even decreasing smoking in areas in which smoking was not banned, for example in the home.
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