Market failure. Smoking as a market failure

First of all, I would like to sum up everything from this article.

In the beginning we learn that smokers' costs have increased by 1bn pound in a year, from 1.7bn to 2.7bn pounds. It is possible that in the future this number will reach the point of 3bn pounds.

Every year British smokers pay 9bn pounds only for TAX on tobacco products. it this is only tax, imagine how much money are flowing through the tobacco market! just unbelievable! well, it is quite obvious, but still.. well yeah, when you're addicted you don't care about your health and money. no, I can't stop thinking about it.. if a pack of Malboro gold costs 5.79.. let's consider that 1 pound is a tax.. aaah, so much money!

The government tries hard to prevent people from buying cigarettes. It has different ways to influence on the tobacco market, but smokers and tobacco companies don't want this changes to be realised. 

- the government wants to ban advertising of tobacco products. well, we know that advertising market is full of money, so advertisers are not so happy as well - imagine hom much tobacco giant companies pay them! and I'm not sure that it will work - Iceland and Canada did that, but this action didn't reduce the number of smokers. 

- one more suggestion is more nice and I think it has the point - make shops hide tobacco products. what do you see first when you enter a shop? yeah, right - a shelf filled with different cigarettes right behind a salesman, near the cashmachine. one of the principals of good selling - if a consumer sees a good, he will probably buy it. if a consumer doesn't see a good, there is a possibility that he won't remember about it or just won't want to buy it. so I think that may help

- and this is really strange suggestion from the government - plain packaging. that means that packs of cigarettes won't have any brands or words on them. the government think that this will help with teenagers' smoking problem - it's not a secret that most teenagers start to smoke just because they want to show off by smoking some 'cool' cigarettes. particular brand of cigarettes attracts customers more and makes them spend more.  

all this ways to improve the current situation have at least one disadvantage - it will be hard to understand where legal market ends and the black market starts.

ok, now I'm going to explain you why smoking is a market failure. well, let's start with cigarettes and tobacco which are demerit goods and have a negative effect on the consumer. this negative effect can not be counted and that's why it isn't included in the price of these goods. in this case market fails when it's imposible to measure external costs. smoking is a negative externality which has a negative effect on the third party. the third party hasn't participated in the proccess of production or consumption but still is affected. market fails because of inability to influence on this negative externality except for complete banning smoking.

a) What is the economic argument for banning smoking in public places?

as I already wrote, smoking is a negative externality which affects the third party, the non-smoker part of the public. harming health of other people by demerit good and\or negative externality is a market failure. 

b) To what extent do you think a £50 fine for being caught will reduce the market failure?
well, I don't think that 50 pounds can compensate all the external costs in this case, but it is a good example if reducing market failure - to the price of cigarettes you add a 50 pound fine which is more close to the social cost than just price of cigarettes. if this practic of fining people for smoking will be developed, in future the market failure could be avoided.   

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