Hong reduce the consumption of cigarettes even though cigarettes

Hong Kong’s tax rate on tobacco goods is a type of tax, which is this case is an indirect tax. An indirect tax is a tax levied on goods or services that consumers have to pay, which results in an increase in the price of the good or service. This tax is placed on ‘harmful goods’, tobacco, as a result increasing the price, attempting to reduce the consumption of cigarettes even though cigarettes is an inelastic good. The indirect tax on tobacco goods, shifts supply to the left, therefore increasing the equilibrium price (P1 to P2) and decreasing the quantity demanded for cigarettes (Q1 to Q2). Taxes would reduce the output of cigarettes since the supply curve shifts to the left due to the increased cost. Reduced supply would mean a smaller number of cigarettes being sold and in this case, this theory of taxes would be true as there are no supply side policies imposed into harmful goods from the government. However, imposing taxes is not effective enough for consumers/cigarette addicts to stop consuming cigarettes as this harmful product is an inelastic good where the PED is less than 1. PED is price elasticity of demand and is the responsiveness of demand to the change in price since the demand for buying cigarettes is inelastic, the high or low changes in price would have little to no effect to the change in demand for cigarettes. Therefore, even if high tax rates are imposed on cigarettes, most of the consumers would continue consuming while a few leave the market. Since the survey on tobacco tax showed that the cost of cigarettes in 2015 was cheaper than they were in 1991, would increase the demand for cigarettes and is more affordable to everyone could possibly lead to increase in consumers. The rise in smoking leads to the social cost being greater than the smokers private cost as it creates many negative externalities such as second-hand smoking, health problems and may even influence the youth to smoke.The current average cost of a cigarette pack is 58$ HKD and the tax rate for the pack of cigarettes is currently sitting at 67% that is significantly lower than the standard 75% tax rate recommended by the World Health Organisation. Due to the high number of smokers in Hong Kong, the report from the survey showed that the tax rates should increase to 100% from 67% to stop at least a small percentage of consumers who smoke, even then it would still make a difference. From Figure 2, the tax rate increasing from 67% to 100% raised the market price (A to B), an increase of 42$ and would decrease the number of packages bought in the long term.This would definitely decrease the amount packages of cigarettes bought by consumers or would at least reduce the amount consumed as packages become less affordable for especially those with lower disposable income. However, for the tobacco market, the 100% taxes would shift the supply far to the left, greatly decreasing their supply and output of cigarettes which is beneficial as this is what Hong Kong wants. Since the indirect tax is very high, the revenue tax received by the government can be used on beneficial things that would also reduce the consumption of cigarettes. For example, the government could use the revenue tax on education on the side effects of smoking cigarettes and what health problem it leads to in the long place or extra health care for those who may be smoking due to their own background or personal problem which could reduce the consumption. Ultimately, indirect taxes imposed on tobacco products won’t be very effective and is not the most effective in both the short and long term. Taxes on harmful and addictive goods and increasing the price won’t necessarily decrease more than 20% of the consumers and the 100% tax would mostly affect the minority who have a low disposable income, which is still not a lot of people. Continuing to increase the tax rate over 100% won’t stop the addicted consumers and would still pay more for the same product as cigarettes are very inelastic. This would still cause health problems and lung cancer to both the smoker and the society. Imposing taxes will definitely not reach the goal of combating smoking and the most effective way to reduce as much consumption is to find proper education or medical help as mentioned in the article.