Negative Externalities of Smoking

The article:

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.



Word count: 535


11 thoughts on “Negative Externalities of Smoking

  1. Childish Gambino says:

    in your second model, does the market only even remain on the graph because of blackmarket activity?

    • sophiah07 says:

      If the government had banned cigarettes completely, then yes, it would only remain on the diagram due to the blackmarket, however if the government had not imposed a complete ban on cigarettes then the curve would just be shifted closer to the socially desirable level of output.

  2. mariana says:

    Hi what did you used this for? I really enjoyed it

    • sophiah07 says:

      Hello 🙂 thank you! I’m studying the International Baccalaureate at school, and as part of the economics coursework, we have to write 3 short pieces based on different articles, using economic theory related to the article we choose and the topic, so my teacher asked us to set up a blog where we can put practice articles and drafts that we do.

  3. mariana says:

    Sorry what did you use this for*

  4. mariana says:

    That’s great!! and was this your final one? Good luck!!

    • sophiah07 says:

      no, this was just a slightly shortened practice one, but I’ve handed in my first draft of my real one which I’ll get back soon! Thank you!!

  5. Theresa Hsu says:

    This blog post really helped me to understand the concept of negative production externalities. I’m also studying IB economics at school and I did the similar thing like find an article related with the topic and explain some significant facts about an article. So basically practice the concept in real world examples. I really enjoyed your blog!!

    • sophiah07 says:

      aah thank you! I’m glad it helped! This was a shortened draft of the coursework, which our teacher made us do to practice, and it definitely helped my coursework 🙂 Good luck with your IB!

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