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Louisiana Legislature Oks 50-Cent Tax Increase On A Pack Of Cigarettes?

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In article, the writer points out that Louisiana legislature Oks 50-cent tax increase on a pack of cigarettes. To prove the statement, we can apply a microeconomic concept which is tax on buyer and tax on seller to the situation. An excise tax is a tax charged on each unit of a good or service that is sold. To discourage consumption of some good is one of the typical aims for excise taxes. From time to time, governments place taxes on markets with intentionally decrease market activity for the reason that the government feels the good or service being consumed is ethically or morally bad for people and it doesn’t trust people to make their own choices. Taxes are levied as a source of revenue for the public projects. Government more likely …show more content…

Equilibrium price of cigarettes decreases from RM9.00 to RM8.80 however the equilibrium quantity falls from 80 to 70 pack of cigarettes when the tax is presented. Tax diminish the size of the cigarette market as the sellers sell less and buyers buy less in the new equilibrium. Buyers and sellers share the burden of the tax in the new equilibrium. The tax burden of RM0.50 is shared between buyers and sellers. Sellers have to bear RM0.20 less for each pack of cigarettes than they did without the tax and therefore tax makes the sellers worse off while the buyers have to bear RM0.30 and the tax also makes buyers worse off in this case. Therefore, increase the tax will cause to decrease in the number of smokers and better healthcare and saving lives in Louisiana. Hence, taxes discourage market activity because the quantity of the good sold is smaller as compared to the original equilibrium when the good is taxed. The tax burden is being shared between buyers and sellers. Buyers pay more simply for the good since they are less responsive to price ups or downs and discover it harder to change their cigarette purchase decisions to “get away from the tax”, and sellers receive less in the new equilibrium. This means sellers don’t have to lower their prices very much to keep sales relatively

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