An economically efficient level of smoking:

Question

a. means people would not smoke

B. occurs at the market equilibrium

C.would have to account for all costs but would be greater than zero

D. would have to increase to provide more jobs for farmers and tobacco workers

Answer 1

There are external costs to smoking in the absence of taxes. People will smoke more than is economically efficient. We have to equate the social marginal Benefit with Social Marginal cost. A tax could help equate SMC and SMB. Due note that without taxes, a Pack of Cigarettes would be 2-3 dollars in some states they cost 10-15 dollars the tax on them is already 200-400r more. Some could argue that the current tax rates on cigarettes are larger than is economically efficient.