To counteract the effects of present bias in smoking behavior, the tax per pack of cigarettes is
Question:
To counteract the effects of present bias in smoking behavior, the tax per pack of cigarettes is roughly ________ ($1, $3, $11, $35) per pack. (Related to Application 4)
Transcribed Image Text:
Application 4 TAXING CIGARETTES TO OFFSET PRESENT BIAS APPLYING THE CONCEPTS #4: What is the appropriate cigarette tax? The present bias that leads some people to smoke cigarettes raises an important policy question: Can we use taxes on ciga- rettes to offset present bias and actually make people better off in the process? A recent study concludes that to fully offset the present bias that underlies the decision to smoke, the appropri- ate tax is roughly $11 per pack of cigarettes. The authors of the study focused on the effects of smoking on premature death. Smoking cuts the lifespan of the typical smoker by roughly 6 years, and given the economic value of 1 year of life, we can translate the cost associated with pre- mature death into a cost of roughly $36 per pack of cigarettes. If smokers did not suffer from present bias, their present choices would fully reflect this future cost, meaning that they would com- pare the benefit of smoking (the nicotine experience) to the full cost of a pack of cigarettes (the purchase price plus the $36 cost associated with premature death). But present bias is sufficiently strong that a tax of roughly $11 per pack is required to ensure that the typical smoker considers the full cost associated with premature death. This tax puts the benefits and costs of smoking on an equal temporal footing: a tax of $11 moves the neglected future cost to the present, allowing a person to make choices that consider the full benefits and costs of smoking. How would the cigarette tax affect low-income households? Because smoking is more prevalent among the poor, a cigarette tax imposes a relatively large tax burden on low-income house- holds: lower-income households spend a much larger fraction of their income on cigarettes and cigarette taxes. The authors of the study suggest that the cigarette tax would actually be bene- ficial for low-income households. The reason is that low-income households are relatively responsive to changes in the price of cigarettes, so they would experience a relatively large reduction in smoking, and a relatively large increase in lifespan. Of course, the whole idea of the tax is to reduce smoking, and anyone who quits gets the benefit of a longer lifespan and avoids paying the $11 tax too.
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 33% (3 reviews)
To counteract the effects of present bias in smoking behavior the tax per pack of cigarettes is roug...View the full answer
Answered By
PALASH JHANWAR
I am a Chartered Accountant with AIR 45 in CA - IPCC. I am a Merit Holder ( B.Com ). The following is my educational details.
PLEASE ACCESS MY RESUME FROM THE FOLLOWING LINK: https://drive.google.com/file/d/1hYR1uch-ff6MRC_cDB07K6VqY9kQ3SFL/view?usp=sharing
3.80+
3+ Reviews
10+ Question Solved
Related Book For
Microeconomics Principles Applications And Tools
ISBN: 9780134078878
9th Edition
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez
Question Posted:
Students also viewed these Business questions
-
Show that the harmonic series is divergent. 511+ 1=n + 1 2 3 + 4
-
Common stock value: Constant growth Seagate Technology is a global leader in data storage solutions and a high-yield dividend payer. From 2018 through 2022, Seagate paid the following per-share...
-
The present bias that leads some people to smoke cigarettes raises an important policy question: Can we use taxes on cigarettes to offset present bias and actually make people better off in the...
-
The curve known as the Bernoulli spiral (Figure 7) has parametrization r(t) = (e t cos 4 t , e t sin 4t). (a) Evaluate s(1) = ||' (u) du. It is convenient to take lower limit -co because _lim_r(1) =...
-
An inexperienced bookkeeper prepared the following trial balance that does not balance. Prepare a correct trial balance, assuming all account balances arenormal. PELICAN COMPANY Trial Balance...
-
Write an equation for the rose curve r = 2 sin 2 after it has been rotated by the given amount. Verify the results by using a graphing utility to graph the rotated rose curve for (a) = /6, (b) =...
-
Suppose that instead of choosing Earth and the ball as our system in the discussion leading up to Eq. 7.21, we had chosen to consider just the ball. Does it make sense to speak about the...
-
Preparing a Multiple-Step Income Statement Aeropostale, Inc., is a mall-based specialty retailer of casual apparel and accessories. The company concept is to provide the customer with a focused...
-
11. If a,b,x,ye R,@ #1, is a cube root of unity and (a+b)=x+yo, then (b+aw)' equals: (a) y+x@ 6 (c) -y-xw 12. The value of S = sin- -icos- (c) y+yw (d) -x-ya 2k is: 7 (c)-i (d) i , then value of...
-
If the typical consumer buys 200 gallons of gasoline and the gasoline tax increases by $3, revenue neutrality requires that the consumers income tax must ________ (increase/decrease) by ________.
-
In the Pepsi Challenge, a majority of consumers favored Pepsi in _________ taste tests, but Coke _________ taste tests.
-
Human resource managers face the business problem of assessing the impact of factors on full-time job growth. A human resource manager is interested in the impact of full-time voluntary turnover and...
-
Lyle Inc. is a cash-basis, calendar-year taxpayer. In 2019, it changes to the accrual method of accounting, Its 2019 income computed under the accrual method is $75,000. The following information...
-
Do either of the transactions below qualify for installment reporting? If not, why not? a. Credit sales of dealer inventory b. Credit sales of property not held as inventory
-
As part of a study of young, UK-based black and minority business graduates career identities and aspirations, research participants were asked to talk about their future work-family balance. The...
-
X Corporation was formed and began operations on September 1 of this year. X Corporation expects to have taxable income of $25,000 each quarter of operations for the first two years. X Corporation is...
-
Char Co.'s uses financial accounting practices/methods for tax purposes. Is this practice an automatic defense against a challenge by the IRS that some (all) such practices do not clearly reflect...
-
Explain the terms nouvelle cuisine and fusion cuisine.
-
Data on weekday exercise time for 20 females, consistent with summary quantities given in the paper An Ecological Momentary Assessment of the Physical Activity and Sedentary Behaviour Patterns of...
-
The following comment appeared in the notes of Colorado Corporations annual report: Such distributions, representing proceeds from the sale of Sarazan, Inc. were paid in the form of partial...
-
This comment appeared in the annual report of Mac Cloud Inc.: The Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B...
-
For what reasons might a company restrict a portion of its retained earnings?
-
Let f(x) = a(x-1)(x+1) where is some unknown number. How many turning points will the graph y = f(x) have? Does it depend on the value of a? For following questions assume a > 0 Is the vertex above...
-
QUESTION FOUR (25 Marks) 4.1 Complete the table for the transactions provided for each of the following methods of inventory valuation: 4.1.1 FIFO (7) 4.1.2 Weighted Average Cost. (Round off the...
-
Edward s Bowling has total assets of $ 1 2 9 0 0 0 and total liabilities of $ 3 9 5 0 0 . At the beginning of the year, the owner s equity was $ 7 1 0 0 0 . During the year, Edward, the owner,...
Study smarter with the SolutionInn App