TAILIEUCHUNG - Lecture Issues in economics today - Chapter 18

When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps. | Lecture Issues in economics today - Chapter 18 Chapter 18 Tobacco and Alcohol McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Chapter Outline AN ECONOMIC MODEL OF TOBACCO AND ALCOHOL WHY IS REGULATION WARRANTED TAXES ON TOBACCO AND ALCOHOL McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Economic Impact of Beer and Cigarettes Beer Industry Sales 17 billion Employees 33 000 Cigarette Industry Sales 27 billion Employees 20 000 McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. The Simple Model Value to the Consumer P 0ACQ A Supply Consumers Pay Producers OP CQ The Variable Cost to Producers OBCQ P C Consumer Surplus P AC Producer Surplus BP C B Demand 0 Q Tobacco Alcohol McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Why Regulation is Warranted To provide information or to correct for the inability of consumers to make good decisions Examples restrictions on advertising of tobacco warning labels age restrictions To deal with externalities effects of a transaction that hurts or helps people who are not a part of that transaction Examples drunk driving and second-hand smoke Immorality of a good not a justification economists often use Example prohibition McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Ads and the Information Problem Whaaazzuupp how ya doin Joe Camel NASCAR Winston Cup Busch Series Car sponsors Miller Budweiser Kodiak Virginia Slims Tennis These ads appeal to children whether or not they are intended as such . McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Externalities Tobacco accounts for approximately 1 per pack in costs incurred by taxpayers and nonsmokers. Medicare Medicaid Asthma Drunk Driving accounts for one-third of the 37 000 traffic accidents that cause 40 000 deaths McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Modeling Externalities Social Cost P .

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