Smoking is a de-merit good. This means that it is over-provided in a free market economy. The price mechanism has allocated too many resources than is socially desirable. Smoking is over consumed, as shown in the diagram below: The MSC (marginal social cost) and the MPC (marginal private cost) are not the same. They diverge. This is because society experiences a different cost from the good being consumed than the individual. The demand side is the same hence why MSB = MPB. The individual is happy when MPB = MPC, (10 a day). Therefore they consume where the red and green lines meet. Here their MPC = MSB so they are happy.
Society is happy when MSB = MSC. So they want people to consume where the pink lines meets the green line. MSB = MSC (5 a day). Below 5 a day both the MSC and MPC are below MPB and MSB. So both society and the individual wants to consume the good. Above 10 a day the MSC and the MPC are above the MSB and the MPB so neither the individual or society wants more than 10 cigarettes a day. However in between 5 and 10 cigarettes a day, the MSC is above the MSB so society does not want to have that many cigarettes. The MPB is still above the MPC so the individual does want to have 6 to 10 cigarettes but society does not want them to.
It can be concluded that individuals only ever think about the private costs and benefits so make poor decisions from what society would like them to do. This is because even though people are aware of the damages of smoking to their own body, they may not realise how their actions effect the micro-economy. For example, if someone smokes one packet (20 cigarettes) a day, they are far more likely to need to claim on the NHS in later life as they are more likely to have smoking related health issues such as cancer or high blood pressure. The NHS is a government funded organisation which means that the budget is paid for by taxes.
However the cost to the NHS for treating a cancer patient is much higher than that as surgery is at least that figure along with the added expense of other costs such as unemployment benefits if they are forced to give up their job. In this event, them losing a job, the economic costs will be two fold as they will no longer be contributing the the economy and will also be no longer paying taxes.
The MSB is also lower than the MPB. People start smoking because they want to, everyone has the active choice to choose not to if they want. It can therefore be seen as detrimental to society if someone is smoking in public in an area where they are not wanted. To combat this problem, because despite warning of passive smoking risks when smoking in public, the government has had to ban smoking in public areas. This is because the individual has been unable to make the choice that benefits society, only the choice that benefits themselves. However smoking can have a small benefit on society in small way.
The tax on cigarettes is enormous, around 400-500%, and if someone smokes cigarettes for most of their life and does not claim on the NHS for a smoking related cause, the government has greatly benefited out of their habit by increased tax revenue. If the tax revenue has increased it means that the government can either offer the public more in government expenditure (which benefits society) or lower taxes (which also benefits society) or a mixture of the two. Smoking can also have other benefits to society. Many people are employed in the UK in cigarette companies.
If smoking was banned in public areas, these people would see a fall in wages as the demand for cigarettes would go down as people would not be able to smoke as much during the day. This is because the average person spends a proportionate amount of time in Public places such as offices, cinemas, pubs etc. If the demand goes down for cigarettes, the supply must also go down which means that the cigarette companies will have less profits. Less profits means that either the wages for the workers are reduced or people are laid off. This is not good for society. If people’s salaries are reduced their taxable income is also reduced.
This is again bad for society as the government has to find money elsewhere for their budget. A ban of smoking in public areas would also have a negative effect on many other businesses. People who visit pubs frequently tend to be smokers also. This means that if there was a smoking ban, pubs would see less smokers and therefore fewer customers. This would mean that they would have to lay off any workers or even close down. Again this would reduce the taxable income of an economy and again put pressure on the government’s budget. I conclude that there are positives and negatives on a smoking ban in public areas.
However it is apparent that the positives outweigh the negatives. This is because there are more social costs associated with smoking than social benefits and despite various warnings people are not refraining from smoking in public areas. Another important consideration is that if there was a smoking ban, those who smoke recreationally are more inclined to give up as it will become an inconvenience for them to smoke. People who do not smoke already will also be discouraged from starting to smoke and those who are addicted have even more pressure on them to give up.