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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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Summarize the positive (descriptive) and normative (value-based) analysis of the policy or situation.

Present a reasoned conclusion on the policy's effectiveness, considering efficiency, equity, winners and losers, etc.

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Identify and explain relevant economic concepts related to the article.

Describe how the article ties into class economic principles.

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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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- 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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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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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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Positive Analysis (descriptive)
According to the study, there was a brief decrease in underage vaping after California implemented an e-cigarette fee. This conclusion is supported by the fact that, for roughly six months following the tax's implementation, there was a discernible drop in social media posts on vaping by minors. The results show that, at least temporarily, taxes can serve as a deterrent. Nevertheless, the analysis also shows that this effect was short-lived, as the quantity of posts went back to its pre-tax levels, indicating that vaping businesses may have offset the tax's effects with more aggressive marketing campaigns.

Normative Analysis (Value-Based)
The taxation of e-cigarettes is viewed from a normative standpoint as a measure to shield youth from the health hazards of vaping. The tax promotes the wellbeing of a vulnerable group by discouraging underage usage, which is in line with public health objectives. The fact that the initial reduction was not maintained, however, calls into doubt the efficacy of the program and emphasizes the need for stronger measures, like more stringent regulation and control of marketing activities.

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The selected news article, "To Vape or Not to Vape: When an E-Cigarette Tax Has an Impact," was written by Sarah Magnus-Sharpe and published by Cornell University. The article discusses a conducted study that analyzed how an e-cigarette tax affected the vaping habits of minors. Furthermore, the study investigates how social media activity was affected by California's implementation of a vaping product tax, with an emphasis on young users' Instagram posts. The selected news story, "To Vape or Not to Vape: When an E-Cigarette Tax Has an Impact," was authored by Sarah Magnus-Sharpe and published by Cornell University. It talks about a study that looked at how an e-cigarette tax affected the vaping habits of minors. The researchers were from Cornell SC Johnson College of Business. The study especially looked at how social media activity was affected by California's implementation of a vaping product tax, with an emphasis on young users' Instagram posts. Moreover, the tax's initial success in reducing underage vaping is highlighted in the article, along with the difficulties in maintaining these decreases over time.

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Issues with market failures, particularly negative externalities like health hazards and environmental waste, are brought to light by the article's discussion of e-cigarette taxes. Although the tax is intended to reduce negative externalities, unexpected consequences may occur, such as possible substitution for other dangerous goods like cigarettes. Information gaps also contribute to the immediate impact of the tax because young people might not completely comprehend the risks associated with vaping. Additionally, because businesses can modify their techniques to maintain demand, the policy's effectiveness may be weakened by their advertising strategies and market dominance. These elements suggest that the actual dynamics of this market might not be sufficiently captured by the traditional equilibrium model.

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1. Government Intervention: This article is an example of a government intervention since there is a tax on vapes in order to decrease vapes in the market. The government's main goal is to decrease the vapes being produced and consumed since they view it as a negative externality and bad for teenagers health. The main goal of the tax was to "reduce vaping among young people."

2. Supply Shift: Due to the tax on vapes, the supply will shift to the left. One of the key supply drivers is government policy, and a tax is meant to shift supply to the left. When supply is shifted to the left, price increases and, quantity of vapes decreases.

3. Externalities: Vaping among young people is viewed as a negative externality by the government, more specifically by California in this article. The article mentioned that the tax is meant to "protect young people from the dangers of vaping." Vaping increases public health costs and can impact the environment due to plastic and pollution.

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1. The Consumption of Vapes: Due to the tax on vapes, the quantity demanded will move to the left along the demand curve for vapes. Although the article found it a change for only 6 months, we still view it as a movement to the left on a graph, since consumers who vapes in California are affected by the price and the tax. The article showed the quantity of demand decreased because of the decrease of social media posts about vapes as the indicator.

2. Vape Tax Impact: The tax on vapes will change how buyers and sellers interact in this market for vapes. The tax will increase vape prices and producers will change their supply since the price will be higher for them.

3. Tax Burden: When there is a tax, the tax burden can fall on either the consumers, producers, or both. It all depends on how elastic the market. In this articles context, vapes could be assumed (not confirmed) as an inelastic good, so the burden may fall on the consumers more.

4. Substitutes: For vapes, a possible substitute is cigarettes. Both products are taxed as excise taxes, so it entirely depends if it is financially worth it to switch to cigarettes. Consumers of vapes have different preferences, so it depends on preferences if they'd like to look for a substitute.

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Article and Graph Connection: Supply Shift

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Article and Graph Connection: Supply Shift

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In this graph, there is a tax imposed, so supply is shifted to the left and equilibrium price will increase. Equilibrium quantity will decrease, which was the government's goal. The price for vapes will increase as a result. A tax is a supply driver to left due to the higher cost for producers.

Source: St. Paul's Microeconomics

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Analysis: The model's predictions align with the article's context and it is true that price increased and quantity of vapes decreased in the article. The article talks less about producers, but it can be noted that this graph is true for the article's context since price increased.

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Graph for tax burden with inelastic demand

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This graph shows how a tax on vapes will fall more on consumers than producers due to the inelastic demand curve. Since vapes are a unique good and different than cigarettes, it hard to find substitutes, consumers will keep on buying vapes. There is not really a perfect substitute for vapes, so it is difficult to replace for a cheaper product.

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Recent studies, including one from the Cornell SC Johnson College of Business, indicate that while taxation on vaping products can initially reduce underage vaping, the effects may not be long-lasting. For instance, after California introduced a tax on e-cigarettes, there was a temporary decrease in social media posts about vaping among underage users, but this decline only lasted about six months before returning to previous levels. This suggests that while taxes can serve as a deterrent, they may not be sufficient on their own to create lasting behavioral change.

Experts like Vrinda Kadiyali and Piyush Anand emphasize the need for ongoing monitoring and additional strategies, such as increased marketing regulations and social media oversight, to effectively protect young people from vaping. They argue that vaping companies may counteract tax impacts through enhanced marketing efforts, which can undermine the intended effects of such policies.

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Past Policy: Tobacco Taxation and Smoking Bans

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Past Policy: Tobacco Taxation and Smoking Bans

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Historically, the introduction of taxes on traditional tobacco products has been a cornerstone of public health policy aimed at reducing smoking rates. For example, the U.S. saw significant declines in smoking prevalence following the implementation of higher cigarette taxes in the 1990s and early 2000s. According to the Centers for Disease Control and Prevention (CDC), each 10% increase in cigarette prices results in a 3-5% reduction in consumption among adults and a 6-7% reduction among youth.

Additionally, comprehensive smoking bans in public places have proven effective in reducing smoking rates and exposure to secondhand smoke. For instance, New York City’s smoking ban in 2003 led to a significant decrease in smoking prevalence and improved public health outcomes. These measures were supported by extensive public health campaigns that educated the population about the dangers of smoking, which is a strategy that could be mirrored in the vaping context.

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1. Effectiveness Over Time: Both vaping taxes and historical tobacco taxes show initial effectiveness in reducing usage. However, the sustainability of these effects varies. While tobacco taxes have led to long-term declines in smoking rates, the temporary nature of the vaping tax's impact suggests that additional measures are necessary to maintain reductions in usage.

2. Behavioral Response: The response from the market and consumers also differs. In the case of traditional tobacco, the industry faced significant restrictions on advertising and promotion, which helped to solidify the impact of taxation. In contrast, vaping companies have been able to adapt quickly, increasing marketing efforts in response to taxation, which complicates the effectiveness of such policies.

3. Public Health Campaigns: The success of past tobacco policies was bolstered by comprehensive public health campaigns that raised awareness about the dangers of smoking. Similar campaigns targeting vaping, particularly on social media platforms popular with youth, could enhance the effectiveness of taxation and other regulatory measures.

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This graph is consistent to what was described in the article. Since there was a tax on vapes, the supply will shift to the left. The burden was placed on the consumers which also made consumers temporarily slow vaping consumption down. The article focuses on the consumer's burden more since they want the consumers to slow vaping consumption.

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Study Focus:
The Cornell SC Johnson College of Business academics' study aimed to investigate how an e-cigarette tax affected teenage vaping behavior. Instagram postings were used in the study to measure vaping among California youths between 2016 and 2018.

Initial Findings:
The researchers discovered that for roughly six months following the tax's implementation, there were less posts about vaping by minors. This implied that young people's vaping activity had temporarily decreased.

Challenges:
the decline in posts were relatively short-lived, as within six months, activity resumed its prior levels. Vaping firms' enhanced marketing efforts in response to the tax were probably the cause of this revival.

Analysis:
According to the study, taxes may not be a long-term solution, even though they can initially lower underage vaping. Additional steps, such continued regulation and collaboration from vaping firms, are required to achieve long-term reductions.

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The article corroborates that E-cigarette taxes may be regarded as a moderately successful policy.

Efficiency: without enforcing a complete prohibition, it was able to temporarily reduce underage vaping, indicating that taxes can have an impact on behavior. But given that the cut is only temporary, it's possible that the strategy won't be effective in the long run, particularly if businesses figure out ways to counteract the tax.

Equity: Low-income customers, who are more susceptible to price fluctuations, may be disproportionately impacted by the levy. However, by shielding minors from dangerous products, it may be argued that it is advancing equity.

Winners and Losers: given that the tax has some success in lowering vaping, the communities and public health advocates who are worried about young vaping stand to gain from this scenario. Both vaping businesses who expected possible drops in sales and responded with more marketing efforts, as well as minors who continue to vape in spite of the tax, are the losers.

All things considered, the e-cigarette tax has the ability to serve as a temporary deterrent but is not strong enough to be a long-term fix. It should be enhanced with more stringent marketing laws and increased cooperation between businesses and policymakers to protect youth in order to increase its efficacy.

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Graph of a negative externality in terms of MSB & MPB

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Negative Externality in Consumption Graph

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Negative Externality in Consumption Graph

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In this graph, there is more marginal public benefit than marginal social benefit. Smoking is an example of an negative externality in consumption, like this graph is. The highlighted triangle is also interchangeable with deadweight loss.

Source: Bilal Ahmad Danial

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The graph of a negative externality in consumption is consistent for what is described in the article. We know that vaping is a negative externality, which is a reason for the tax on vapes. There is deadweight loss caused by this externality, and also the marginal private benefit exceeds the marginal social benefit. If there were no externality, the marginal social benefit would equal the marginal private benefit.