ChainWhat it assumes · how to break it
Start
People smoke cigarettes near others, exposing them to second-hand smoke, and smoking-related illness is treated by the NHS at taxpayers' expense.
1
As a result, people close to smokers breathe in second-hand smoke.
negative consumption externality
negative consumption externality
Assumes: Smoking takes place near other people.
But: Smoking bans in enclosed public places since the mid-2000s mean much smoking now happens outdoors or in private.
2
This means non-smokers, including children living with smokers, face a higher risk of illness without having chosen to smoke.
external cost · third parties
external cost · third parties
Assumes: Second-hand smoke harms health.
But: Brief exposure outdoors is diluted, so the main harm is to people who live with smokers.
3
Consequently, the NHS spends more on treating smoking-related illness, and this is paid for by all taxpayers.
external cost · public spending
external cost · public spending
Best link to attack
Assumes: Smokers do not cover the cost of their treatment.
Assumes: Smokers do not cover the cost of their treatment.
But: Smokers pay tobacco duty, and some smokers die earlier and draw less in pensions and care, so the net cost to taxpayers may be small.
4
In addition, NHS staff and beds used to treat smoking-related illness cannot be used for other patients, who wait longer.
opportunity cost
opportunity cost
Assumes: NHS capacity is fixed in the short run.
But: If the NHS expands capacity, the effect on other patients is smaller, though the money still has an opportunity cost.
End
Third parties, including people exposed to second-hand smoke, taxpayers and other NHS patients, bear costs from smoking that they did not choose.
Evaluation chain
- E1However, whether taxpayers bear a net cost depends on how much smokers pay in compared with the cost of their treatment.
- E2Because smokers pay tobacco duty on every packet, and some die earlier and draw less in pensions and late-life care, their lifetime cost to the state is partly offset.
- E3As a result, the money they pay in may cover much of the cost of their NHS treatment.
- E4So the cost to taxpayers as third parties may be smaller than it appears, though people exposed to second-hand smoke still bear a cost no tax receipt repays.
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Questions this answers
- Explain two external costs that smoking imposes on third parties.
- Analyse how the consumption of a demerit good can affect people outside the market.
- Discuss whether smokers impose a net cost on taxpayers.
Diagram
MPB above MSB, with MPC = MSC (supply): market output Q1 where MPB = MPC, social optimum Q* where MSB = MSC, so Q1 > Q*. The vertical gap between MPB and MSB is the external cost per unit borne by third parties.
Reverse and related
Positive consumption externality → third parties gain, e.g. others are protected when someone is vaccinated.