The negative consumption externalities of smoking are severe.

Negative
consumption externalities refer to negative effects to a third party from the consumption of a
demerit good. The cigarette is considered as a demerit good which is undesirable for the
consumers but over-provided by the market because it has negative effects on both the
smokers’ health and the environment. Since the market equilibrium of cigarette is
determined by the consumers’ private benefit, the benefit that society receives is less than
the benefit to the individual smokers. Thus the private benefit for consuming cigarette is
overestimated due to the smokers not taking into account the negative social impacts.

As the CDC suggests, smoking creates negative externality of “smoking-related

illness” which “costs more than $300 billion a year.” Due to these negative externalities, the
marginal social benefit (MSB), is smaller than the marginal private benefit (MPB).

Figure 1 illustrates the equilibrium (Eq), where the supply equals the demand, and
the social optimum (Eso), where MSC equals MSB. However, at the current market
equilibrium, deadweight loss (shaded area) is created because MPB exceeds MSB. To
minimize the deadweight loss, the “nationwide ban on smoking in public housing” was
implemented. This policy is likely to decrease cigarette consumption because cigarettes will
become less desirable to consumers due to the decrease in the legal smoking area. In
Figure 2, as MPB shifts to MPB1, the equilibrium quantity falls from Qe to Q1. As a result,
the new equilibrium (A1) is moved closer to the socially optimum quantity (Pso-Qso). Thus,
as the quantity demanded decreases, the welfare loss within the society decreases from A-
B-C to A1-B-C1. Overall, since the market equilibrium is moved towards the social optimum
point, it is evident that the external cost to the society shrinks due to the policy.
 Public housing is a program established to provide housing for low-income families.
Therefore, if smoking cigarette becomes prohibited in all “public housing units and common
areas,” poor smokers would be incentivised to quit smoking because they will have nowhere
else to go. This will shift the MPB curve to its left. Also, the policy is likely to aid non-smokers
by increasing the chance of getting the public housing due to the decrease in the demand for
public housing among the smokers. Thus, this makes the policy moral because non-smokers
are the ones who did not contribute to the creation of negative externality.

Moreover, since people live near each other in public housing, the legislation is likely
to be effective. The article states that the tenants “could face eviction after several smoking
violations”. This implies that the tenants will be incentivised to report any illegality regarding
smoking which would not only enhance the efficiency but also decrease the monitoring cost
for the policy.

Furthermore, in long term, the policy is likely to decrease cigarette consumption in

the next generation because the policy reduces the chance of children picking up smoking
by prevents them from being exposed to cigarette smoke. Also, the policy contributes to
decreasing negative health impact caused by second-hand and third-hand smoking because
the smokers and the amount of residual contamination from tobacco smoke that remains in
public housing will decrease as time elapses. Therefore the MSB curve will be shifted to its
right. Thus, the policy successfully targets low-income earners.
 However, government legislation has limitations in measuring the negative
externality. Since air pollution and health impacts over time are all non-monetary, it’s hard to
figure out the negative externality accurately. Hence, the legislation needs to be adjusted
after being implemented as it is hard to decide how strict the regulation should be
beforehand.

Moreover, although the legislation aims to “wipe out smoking in more than 940,000
other units” to decrease the cigarette consumption, it might not have any significant effect.
This is because smokers will still find places to smoke and the regulation may not be strict
enough. Furthermore, if the government bans smoking in common areas without providing
smokers with alternatives, there is no guarantee that they will stop smoking. Thus, in order
for the policy to be effective, the inspection should be strict and alternatives such as chewing
tobacco should be available for smokers.

Overall, the policy successfully targets the low-income earners to decrease the
cigarette consumption and prevents children from being exposed to cigarette smoke. This
will decrease the negative externality created by passive smoking and health expenditures.
Yet, the decrease in the negative externality may not be significant enough due to the
existing alternatives for the smokers.

Word: 750