“The Diminishing Returns to Tobacco Legislation”

Pierre Lemieux makes three key points in this article regarding why government intervention does not work. The first is those that want to quit have. Second, too much information tends to become discounted. The third point is people look for ways to avoid taxes.

The increasing size and aggressiveness of government warnings on tobacco products point to decreasing returns to regulation. In order to maintain the antismoking movement's momentum, more and more regulations and taxes are required, which is also consistent with the interest of our large public health bureaucracies. Certainly, health bureaucrats have become addicted to power. One wonders what will be the next regulatory steps. (Lemieux, 2001).

This point lessons the debate because it contradicts the prior three statements about interventions not working.

“Sin taxes” are placed on inelastic items such as cigarettes. Government increases tax revenues on cigarettes, demand goes down. As well, the decline in quantity is less than the tax increase. The revenue increases more than the decrease of the demand. Therefore, not enough people quit smoking to decrease the tax revenue (p. 126  (John E. Sayre, 2009). There will also be a portion of the population that would seek a cheaper, illegal supply.

Let’s next review some key textbook definitions. “Total product is the total output of the productive process. Marginal product is the increase in total product as a result of adding one more unit of input. Average product is the total product/total output divided by the quantity of inputs used to produce that total. The law of diminishing returns is as more of a variable input is added to a fixed input in the production process, the resulting increase in output will, at some point begin to diminish” (p.203, 204). (John E. Sayre, 2009)

An estimated point of diminishing return for the government would be to increase variable costs such as labour, advertising, and packaging to fixed costs to the point that output diminishes. Supply would increase. The market would have too much, demand decreases.