In the Case in Point on Externalities, Irrationality, and Smoking, economists Gruber and Mullainathan determined that people with a propensity to smoke:
A) did not act in a manner consistent with bounded willpower or time inconsistency.
B) had constant utility as excise taxes increased because of perfectly inelastic demand.
C) would have higher utility as a result of higher excise taxes.
D) would gain more utility as a result of lower excise taxes.

Question

Quizplus · Accepted Answer

Gruber and Mullainathan's research suggested that people with a propensity to smoke actually benefit from higher excise taxes on cigarettes. This is because such taxes help them overcome their time-inconsistent preferences (where they might prioritize immediate gratification from smoking over long-term health benefits) by making smoking more expensive and thus less attractive. This aligns with the concept that higher taxes can serve as a corrective measure for the externalities associated with smoking, such as health costs, by reducing consumption and helping individuals align their actions more closely with their long-term welfare.