In this exercise we were asked to review the article "The Diminishing Returns on Tobacco Legislation" by Pierre Lemieux.

The issue of tobacco and it's health risks has been an issue for many years for governments. With all the research that has been done and all of the statistics about the huge health risks people still continue to smoke. The government has tried to step in with new legislation to deture people from smoking, their methods have had some success according to the article but more can be done. They have increased the prices of tobacco more than once, plastered imagery of affected organs on the packages and they have limited your access to where you can buy it to try to deture people from purchasing tobacco. Studies have shown some decrease in consumption but not as much as they would have hoped. The consumers that are most easily persuaded have quite but the those who value smoking more have not.

What more can be done to reduce consumption of tobacco? According to the article they believe that a substantially higher price increase could deture those still smoking. By increasing the sin taxes by a substantial amount you will see a decrease in consumption. As there would be no cheaper substitue to tobacco, becasue all tobacco has the same sin tax, families and individuals would no longer be able or willing to afford the cost of tobacco and the government would see a decrease in consumption.

The possible side effect of the new legislations that have been implemented and a hike in sin tax in the future could be that there would be a reduced demand for tobacco and because of this reduced demand the supply would go up and there may be a few tobacco producers and suppliers that would not be able to turn a profit and may have to close down. This would reduce the amount of tobacco that is in circulation reducing the amount available in normal markets and possibly in the black market as well.

In conclusion I think that the point of diminishing returns was from 1995 to 1999 when real prices jumped by another 48% but consumption receded by only 11% down from 1985 to 1995's increase of the real price by 52% which saw an 18% reduced consumption.