Because smoking causes illness and disability to smokers, society must maintain more health-service capacity than it would need in the absence of smoking.Since the cost of maintaining this capacity is covered to a substantial degree by health insurance, even nonsmokers must pay higher premiums.Also, smokers hurt nonsmokers as a result of "passive smoke." The Rand Corporation estimates these costs to be 29 cents per pack of cigarettes.Cigarette taxes average 37 cents per pack.Based on the economist's definition of efficiency, it follows that

Question

Quizplus · Accepted Answer

The economist's definition of efficiency involves aligning costs with benefits. If the external costs (healthcare costs and passive smoke harm) are estimated at 29 cents per pack and the tax is 37 cents, the tax exceeds the external costs by 8 cents. This suggests that the tax is higher than necessary to cover the external costs, leading to a situation where cigarette production might be lower than the efficient amount because the tax reduces consumption more than is needed to account for the external costs.

Because Smoking Causes Illness and Disability to Smokers, Society Must