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Unit 1: Cigarettes, demerit goods and government failure

Friday, July 12, 2013
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Okay, hands up, how many of you economics teachers use cigarettes as one of your primary examples of a demerit good? Well, it does fit the bill and it gives you the opportunity to give teenagers a bit of a lecture about healthy living (if only the Ofsted inspector was there for that lesson).

The government's announcement today that they are to postpone the introduction of standardised packaging for cigarettes is bound to meet with some criticism - many will claim that they are giving in to pressure from a tobacco industry which feels that it is already heavily regulated. The concept is that a standard, plain package will put some people off from purchasing cigarettes as there is some research that says that people are attracted to the branding. Personally, until they put the phrase 'don't listen to your peers, they smell' on the box I'm not convinced the plan would have much impact anyway.

What intrigued me more about this story, is the fact that the government have postponed the plan until the impact of standardised packaging has been more closely studied in Australia (where the policy already exists). So there you go, not only is this a story about cigarettes as a demerit good but it is also an example of the government attempting to avoid policy failure. The government argues that it shouldn't spend money on implementing policies and then policing the tobacco firms and retailers if the impact of the programme is minimal. In a sense, the government are arguing that taking its time over this plan may save money in the long run or enable it to spend its scarce resources on a policy that has more impact.




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