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Use a graphic to visually demonstrate the standard equilibrium model's application to the policy or situation in the article.

Analyze whether the model’s predictions align with the article's content.

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Graph showing difference between Social Cost and Private Cost

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Externalities occur when the consumption or production of a good affects third parties who are not directly involved in the transaction. E-cigarette use creates negative externalities in the form of public health costs. Producers in the e-cigarette industry focus only on their private costs, ignoring the external costs that impact society. This leads to an overproduction of e-cigarettes compared to the socially optimal quantity.

Government intervention, such as taxation, is needed to raise e-cigarette prices to a more socially optimal level. By increasing the cost, the government can reduce consumption and ensure that the societal costs of vaping, such as public health expenses, are internalized in the price paid by both producers and consumers.

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- Present a comparative analysis of the current situation with a past policy or scenario.
- Use real-world examples or expert viewpoints to provide a broader perspective.

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Introduce the chosen news article and its source.

Provide a brief overview of the main points discussed in the article.

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In recent years, many areas have tried to implement increased taxes on e cigarette products as part of efforts to increase public health. California, for example, has increased taxes to reduce youth vaping rates and reduce access. Recent studies, like the one implemented in California, show that an increased tax on vapes directly reduces usage among teens, at least for a little while. Taxes alone may not deter teens from vaping permanently. California reported this tax only deterred teens for around six months, and then vaping rates returned to normal. As the National Library of Medicine explains, because tobacco can be so addictive, consumers are sometimes insensitive to price changes in the short run. The CDC strongly recommends tobacco control programs as a way to help reduce the amount of teens vaping in each state. South Dakota increased Medicaid in 2022 and saw a surprising 20% increase in quit attempts, revealing another effective potential solution to help reduce vaping in each state.

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Credit: Pixabay/CC0 Public Domain

E-cigarettes have become a big concern for public health, especially when it comes to young people using these harmful products. The U.S. government has considered a tax on vaping products to discourage people, especially underage users, from vaping. A new study from the Cornell SC Johnson College of Business aims to determine how much of an impact a tax might have by analyzing behavior on a social media platform.

In the paper "Smoke and Mirrors: Impact of E-cigarette Taxes on Underage Social Media Posting," published in Marketing Science, Vrinda Kadiyali, professor at the Samuel Curtis Johnson Graduate School of Management, and co-author Piyush Anand, assistant professor at the Jones Graduate School of Business at Rice University, sought to cut through the barrier to data for the underage category and uncovered some interesting findings.

Kadiyali and Anand looked at Instagram pictures from 2016 to 2018 to see if the number of posts about vaping had changed after a tax on vaping products was introduced in California. They figured that if they found fewer posts about vaping, especially from underage users, it might mean that the tax was working to reduce vaping among young people.

They chose Instagram because it is a popular social media platform, especially among people younger than 21. By looking at the pictures people post, researchers could get an idea of how much vaping was going on, especially among underage users. Their posting behavior is a potential proxy for consumption behavior.

The researchers used neural networks and deep learning models to analyze the pictures and figure out things like the age, gender, and race of the people in them. They found that after the tax was introduced in California, the number of posts about vaping by underage users decreased for about six months but then went back to normal.

"Our findings show us that the tax might have had some effect on stopping young people from vaping, at least for a little while," said Kadiyali, who is also the director of graduate studies for management in the Johnson School. "After six months, things returned to how they were before the tax was introduced. The discussions in California suggest vaping companies might have responded to this tax increase with their own increase in marketing activities, reducing the dampening impact of the tax on underage posting. California subsequently enacted a further tax to overcome these company actions."

The paper suggests that taxation could have some initial impact on reducing vaping among young people, but it might not be a long-term solution unless vaping and other newer tobacco delivery companies commit to protecting young people from the dangers their products pose.

"Managers of vaping products may want to pay close attention to our findings and think about how they can support higher taxes on vaping products to help protect young people," Anand said. "They should also consider monitoring social media to see if their products are being used by underage people and develop strategies to reduce it."

The researchers believe that regulators such as government officials should design a tax so that it has the biggest impact on reducing vaping among young people. And they should also keep an eye on social media to see if their policies are actually working.

"Our research shows that taxing vaping products could help reduce vaping among young people, but it's not a perfect solution," Kadiyali said. "We need to keep studying the issue and coming up with new ideas to protect young people from the dangers of vaping."

More information: Piyush Anand et al, Frontiers: Smoke and Mirrors: Impact of E-cigarette Taxes on Underage Social Media Posting, Marketing Science (2024). DOI: 10.1287/mksc.2022.0241

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To vape or not to vape: When an e-cigarette tax has an impact

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E-cigarettes have become a big concern for public health, especially when it comes to young people using these harmful products. The U.S. government has considered a tax on vaping products to discourage people, especially underage users, from vaping.

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The article highlights market failures related to information imperfections and externalities. Young people may lack complete information about the health risks of e-cigarettes, leading to overconsumption.

The addictive nature of nicotine can create negative externalities, impacting public health.

These factors challenge the standard equilibrium model by indicating that market prices may not reflect true societal costs.

The presence of market power among e-cigarette manufacturers can lead to price-setting behavior, further distorting market predictions. Unintended consequences, such as potential increases in black market activity, may also arise from higher taxes.

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- Discuss any market failures, unintended consequences, or information imperfections affecting the situation in the article.
- Explain how these factors challenge or modify the predictions of the standard equilibrium model.
- Discuss potential unintended consequences, externalities, market power, or reasons the standard market equilibrium model may not be applicable.

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https://www.ajpmonline.org/article/S0749-3797(23)00019-3/fulltext

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The article by the "AJPM" presents a descriptive analysis indicating that higher e-cigarette prices and taxes can effectively reduce usage among consumers, particularly among younger users.

It argues that this policy aligns with public health goals by discouraging harmful behaviors.

In conclusion, the policy is effective in promoting efficiency by reducing e-cigarette consumption and equity by protecting vulnerable populations, although it may create a disadvantage for low-income smokers who might resort to cheaper, unregulated alternatives. Overall, the benefits to public health outweigh the potential drawbacks.

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In Investigating the Impact of E-Cigarette Price and Tax on E-Cigarette Use Behavior by the American Journal of Preventive Medicine (AJPM), researchers aimed to assess the sensitivity of e-cigarette use by high-schoolers to changes in prices and taxes. Their goal was to determine whether raising prices and taxes would effectively deter and reduce e-cigarette use.

By comparing data on past 30-day usage of e-cigarettes with inflation-adjusted price and tax data on the product, they found that increases in e-cigarette prices and taxes were significantly associated with reductions in usage for this demographic.

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Graph showing Inelastic vs Elastic demand

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The price elasticity of demand measures how sensitive consumers are to price changes. If a product is price elastic, a small increase in price leads to a significant drop in the quantity demanded. If the product is price inelastic, the opposite occurs - a small increase in price leads to a small drop in quantity demanded.

In the context of this article, the researchers found that higher e-cigarette prices were associated with a noticeable reduction in use by high-schoolers, suggesting that e-cigarette demand is price elastic. This means these young consumers are more responsive to price increases, and raising prices, whether through direct cost hikes or taxes, can effectively curb consumption.

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According to the National Library of Medicine, past taxation of tobacco products has had significant affects, particularly on teens. The Health Examination Survey conducted from 1966 to 1970 showed that an increased price for tobacco products had a notable affect on the smoking behavior of teens. The price elasticity of demand was in fact three times higher than that of adults, showing that teens are much more responsive to price changes than adults. From 1979 to 1991 in Canada, a tax was imposed on tobacco, and it resulted in a 62% decline on teens who report daily smoking.

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In the United States, tobacco is taxed by federal, state, and local governments. Tobacco products are taxed in two ways: the unit tax, which is based on a constant nominal rate per unit (that is, per pack of cigarettes), and the ad valorem tax, which is based on a constant fraction of either wholesale or retail price. Currently, federal taxes on cigarettes, small cigars, and smokeless tobacco products are unit taxes; federal taxes on large cigars are ad valorem taxes. In 1993, all states and most localities used a unit tax for taxing cigarettes and ad valorem taxes for non-cigarette tobacco products. In 1993, consumer excise taxes on tobacco generated more than $12 billion in tax revenue, 98% of which was derived from taxes on cigarettes.1

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While taxation of tobacco both today and in the past has resulted in reduced usage, past taxation has proven to be much more effective than modern taxation. This could be due to several reasons, including increased access to tobacco products nowadays, altered social norms, the effects of modern marketing tactics, and the increased overall attractiveness of vapes, from the flavor to the looks. Increased measures would now be required to get the same result that taxation alone had on tobacco usage among teens in the past.

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In this graph it is showing the implications on imposing a tax on cigarets and vapes and the over all supply and demand of the products. You can see the looking at the graph the supply curve shifted to the left but demand will stay the same. This caused equilibrium to move up and to the left resulting in a higher priced good for the consumer but a lower overall quantity bought.The graph also demonstrates how for cigarets and vapes the majority of the tax burden will fall on the consumers compared to the suppliers. This is due to how inelastic products like cigarets and vapes are due to nicotine being an addictive substance.

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When relating this graph to the article "To vape or not to vape: When an e-cigarette tax has an impact" it accurately represents the topics discussed on what they saw change when taxes were implemented on cigarets and vapes. They saw a decrease in vapes can cigarets being bought once the tax was implemented due to the increase in price.