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The effects of taxation are shared between sellers and buyers in the market, this concept is referred to as tax incidence. Whether the burden of tax is more heavily applied to buyers or sellers depends on how elastic the demand and how elastic the supply for the good is.

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One unintended consequence of the tax on E-cigarettes was the marketing ramp up by companies of E-cigarettes. Additionally, since E-cig companies are not personally incentivized or motivated to decrease one of their highest paying demographics (adolescent consumers) they don't have any reason to commit to making sure adolescents aren't consuming E-cigs. There is also a small possibility, that if kids aren't using E-cigarettes due to high taxes, they may have switched to consumption of a more harmful alternative, such as cigarettes or weed. If these factors were to be applied to the standard equilibrium model, it would create a section of negative externalities and perhaps higher marginal social cost curves and marginal private cost curves. In summary, due to the unintended consequences of increased marketing by E-cig companies, and potential worse alternatives to E-cigarettes the standard market equilibrium model may not even be applicable with the newfound tax.

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From a positive analysis perspective, the tax increases the price buyers pay, decreases the price sellers receive, and reduces the quantity of vaping products sold. This policy effectively raises the cost of vapes, discouraging purchase, particularly among young, price-sensitive consumers. As the supply-and-demand framework predicts, higher prices from taxation lead to lower quantities demanded, which can reduce the negative health impacts associated with underage vaping and cigarette use. However, the economic burden is shared between buyers, who pay a higher overall price, and sellers, who experience reduced revenue.

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In a normative analysis, while the tax achieves a temporary reduction in harmful consumption, there is a question of whether this outcome is sustainable or sufficient to meet public health goals. Ideally, the government should implement additional measures beyond taxation to create lasting reductions in youth vaping and smoking, such as stronger advertising restrictions on vaping products or targeted youth education campaigns to reinforce the public health benefits. By taking a comprehensive approach that combines taxation with supportive policies, the government can more effectively address both immediate and long-term health concerns, ensuring that the tax policy does not inadvertently push young people toward alternative harmful products.

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The article To vape or not to vape: When an e-cigarette tax has an impact written by Sarah Magnus-Sharpe was published on Medical Xpress, a resource that publishes news related to health data, advancements, and discoveries.

This article discussed the efforts researchers have made in the interest of public health to reduce vaping in consumers more specifically younger (underaged) consumers. These researchers measured the effectiveness of these efforts based on the appearance of these vapes in social media posts on the social platform Instagram. The main intervention discussed in this article was government taxation on the purchase of vapes and e-cigarettes.

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The study highlighted in the article, was conducted in California and was used to generally understand the effects of this taxation on the purchasing of vapes by underaged consumers. With this taxation on nicotine products occurring in California, the presence of vapes in Instagram posts was significantly reduced compared to the frequency of posting before this taxation.

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The reduction in vape appearance on Instagram only lasted a short while as vape companies began mitigating the effects of the tax on these consumers by increasing marketing efforts. This article further goes on to explain how these producers and managers of vapes and e-cigarettes should also be held responsible for ensuring underage consumers are not using these dangerous products. One way researchers argue that these producers should manage the underage consumption of their products is through the observation of social media posting to ensure that their vapes do not appear in the hands of underaged consumers.

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The overall conclusion of this article is that government taxation on vapes and other nicotine products can be an effective deterrent for young consumers although this strategy needs to evolve and be improved so that the effects of this taxation are not temporary.

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The market for vapes after a tax on buyers is implemented

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The Market for Vapes After a Tax on Buyers is Implemented

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The Market for Vapes After a Tax on Buyers is Implemented

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The demand curve shifts to the left if the tax is imposed on buyers in this market for vapes/nicotine products. In this case, the price the vape sellers received is less than the initial equilibrium price (before taxation) due to the effects of taxation. Along with this, the price buyers pay is more than the original equilibrium price (before taxation). Generally, after the tax, the new equilibrium quantity is lower. However, as we have read in this article, this is not the long-term effect of this taxation as eventually the demand returns to its original level.

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While this example partially worked to mitigate younger generations from purchasing vape products, there is a different real-world example I’d like to highlight with better results. The state of Washington implemented a high distilled spirit tax ($35.31 per gallon) for various reasons. Firstly, to contribute to initiative 1183 to ensure the state wouldn’t lose money from privatization of liquor sales. Secondly, it comes at a higher ticket price due to the high alcohol content within spirits, as opposed to beer or wine. Finally, the high taxation of spirits as a whole is to increase state revenue and simultaneously reduce alcohol-related incidents. Interestingly enough, Washington's rate of impaired driver motor-vehicle related incidents have been on the rise as of 2021. In 2021, 345 deaths via motor-vehicle accidents involved an impaired driver. However, in 2023 now 400 deaths via motor-vehicle accidents involved an impaired driver. So, as you can see, similar to the vaping epidemic, although taxes went up and made a positive impact on negative externalities, improvements only lasted temporarily.

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The Market for Vapes After a Tax on Sellers is Implemented

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The Market for Vapes After a Tax on Sellers is Implemented

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If the tax on vapes is more heavily imposed on sellers in the market the price that buyers will pay will still be higher than the initial (before tax) equilibrium price. Similarly, if the tax is more heavily imposed on sellers the price sellers receive from the sale of the good will be less than the initial (before tax) equilibrium price. The effects of taxation on sellers in this market would result in a shift of the supply curve to the left effectively reducing the equilibrium quantity in the market.

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Depending on who the tax is directly imposed on the supply or demand curve will shift to the left reducing the equilibrium quantity. In both instances of taxation on buyers and sellers in the market for vapes, buyers pay a higher price than the equilibrium price (before tax) and the seller receives a price that is lower than the equilibrium (before tax).

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Does the Model's Predictions Align with the Article's Content

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Does the Model's Predictions Align with the Article's Content

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The predictions based on the equilibrium model partially align with the article's content. The effects of this taxation did reduce the equilibrium quantity in this market for vapes. This effect only lasted a few months according to the article. The number of vapes that appeared on Instagram went back to the level it occurred at before the taxation leaving the effects of this taxation to be short-term.

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Do you think there is a way to permanently reduce the demand of vapes in underaged consumers?

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This article touches on many economic principles, mainly government interventions and effects of taxes that are presented in chapter six of the textbook. This article presents the effects of a tax imposed in the market of vapes as a form of government intervention to deter underage consumers from purchasing and using vapes.

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Do you think that the tax should be more heavily placed on buyers or sellers of vapes? 

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If the tax is (more directly) imposed on buyers in the market for vapes it causes the demand curve to shift to the left, effectively reducing the equilibrium quantity of vapes demanded in the market. At this new equilibrium, the price that sellers receive is less than the original (without the tax) equilibrium price and the price that consumers are paying is above the original equilibrium price.

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If the tax is (more directly) imposed on sellers in the market for vapes the supply curve will shift to the left. At this new equilibrium, buyers are paying a price above the original equilibrium (before tax) and sellers are receiving a price below the original equilibrium (before tax). Due to the shift of the supply curve to the left, the new equilibrium quantity will be lower than the original equilibrium (before tax). Regardless of who the tax is directly imposed on, the buyers and sellers share the burden of the tax. How much of the tax each party will bear the burden of depends both on the elasticity of demand and the elasticity of supply in the market. If demand is more elastic, then the tax burden is imposed more on sellers and vice versa.

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This process of taxation is implemented in the market for vapes and nicotine products as a government intervention to decrease underage use of these products. Another economic principle outside of taxation and government intervention that relates to this article is the concept of negative externalities. The negative health effects that vaping causes are not limited to the people who choose to vape, these negative health effects are also imposed on bystanders who have to be exposed to second-hand smoking/vaping. These negative externalities give the government more of a reason to implement some sort of taxation to internalize the external costs of the action of vaping and move the equilibrium level of vaping to the socially optimal level which is once again a quantity that is less than the original (before taxation) equilibrium level.

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Efficiency: After the regulation, the tax creates a deadweight loss by reducing the overall quantity of vape products sold below the market equilibrium, which leads to a loss in total economic surplus. However, it reflects a trade-off between market efficiency and the public health objective of reducing youth vaping.

Equity: In terms of equity, the tax may disproportionately affect young, lower-income consumers who are more sensitive to price changes, effectively reducing their consumption more than that of wealthier consumers. However, this outcome aligns with the policy’s goal of targeting younger users, who are often less financially resilient and more vulnerable to nicotine addiction.

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Winners and Losers: The primary winners in this scenario are public health advocates and the government, which benefits from increased tax revenue that can potentially be redirected to healthcare or education programs. Society also benefits if the tax reduces youth addiction and the long-term health costs associated with smoking and vaping. Conversely, the losers include vape product sellers, who face lower revenue, and young consumers, who must either bear the higher cost or reduce their usage.