2.

Discuss the cost and benefit of allowing the sale of e-cigarettes in a

market of your choice.
Marginal Social Costs (MSC) are negative or detrimental effects to
the society which result from an increase or decrease in the production or
consumption of a product or service. MSC comprises of private costs and
external costs. Private costs are defined as negative effects to the first
party who are buyers and sellers. External costs are third party effects or
spillover effects which are bad. If a good is having negative externalities,
then its social cost is greater than private cost.
Price

MSC

MPC

MSC>MPC
Negative Externalities

MSB=MPB
Quantity
Q

Q*

Private benefits are the benefits which accrue to the individual

buyers and sellers of a product. In contrast, the external benefits are
those which accrue to the third parties. External benefits can be
generated by consumers and producers, and falling on the same. Example
of products where external benefit arises are education, medicines, public
goods and scientific research. These benefits not just the individual
producer or consumer who paid for them, but society at large. Marginal
Social Benefits (MSB) which is the sum of private benefits and external
benefits are all the extra benefits which result from an increase or
decrease in the output of a product or service. A product or service is said
to have positive externalities when its social benefits exceeded the private
benefits.
Price
MSC=MPC

MSB>MPB
Positive Externalities

MSB
MPB
Q*

Quantity

Is e-cigarette generating more costs or benefits to the society?

Different countries are having different perspectives on e-cigarettes. Some
countries like U.S.A. might think e-cigarettes is generating huge cost to
the society that urge them to ban e-cigarettes. While in the other hand,
UK government is still uncertain about how to respond to e-cigarettes.
E-cigarette was first invented and marketed as a tool to quit
smoking. This because e-cigarette which vaporizes a liquid nicotine
solution enables users to control and adjust the amount of nicotine they
inhale, which then gradually weaning themselves off their addiction.
According to a survey from Action on Smoking and Health (Ash), there are
actually 2/3 of e-cigarette user migrate to e-cigarette to reduce or even
quit smoking. From a research, it shows that e-cigarette is as effective as
nicotine patches which is also used to reduce the craving for cigarettes.
While for those who are not able quit smoking, they ended up smoking
less comparing to the previous period. Hence, this shows that e-cigarette
is contributing benefits to the society which helps to reduce smoking
population in UK.
E-cigarette which is a cartridge containing only nicotine, flavoring
and chemicals like glycerin is less harmful comparing to traditional
cigarettes which contain tobacco and tar. Therefore, e-cigarette is
contributing Private Benefit to a smoker as it is less harmful to their
health. Furthermore, e-cigarette which works with a plastic filter which is
refillable and recyclable is cheaper comparing to traditional cigarettes in
the Long Run. This is because what an e-cigarette user needs is just a
small bottle of liquid nicotine solution. This 20ml of liquid nicotine which
could support 200 uses is only sold at 7.99. Therefore, this will increase
consumer surplus for smokers when they migrate to e-cigarettes.
Price of cig and e-cig
Ss

: Consumer surplus of cig

Dd
e-cig

: extra consumer surplus from

Cig

e-cig

According to producers, e-cigarette is containing less chemical

contaminant which is harmful to health and its emission is less harmful
comparing to traditional cigarettes which will emit Carbon Monoxide (CO),
Carbon Dioxide (CO2) and benzene that required third parties to pay huge
cost like air pollution and respiratory diseases. Cigarette butts which are
the most common form of litter, as an estimated 6 million cigarette butts
are thrown away every year in UK and the government are spending 3.8
million each year to clean up the mess. Smokers tend to litter cigarette
butts will definitely causing pollution as LC50 from smoked cigarette butts
is highly toxic which will kill small animals and damaging the ecosystem.
There are more than 1,000 cigarette related wildfires happening annually
and these disasters are caused by smokers carelessness who tend to
litter cigarette butts. Hence, e-cigarette which is refillable and recyclable
tends to be a useful tool to reduce wildfire and to improve UK
environment.
While e-cigarette is contributing benefits to smokers, society and
the environment, it is also generating some negative effects to first party
and third party which is the society. E-cigarette is generating private cost
to Tobacco Companies in UK as there is a great migration of population
from traditional cigarettes to e-cigarettes. Either with the reason of
quitting smoking or to save money, there is a great number of people who
migrate from traditional cigarette to e-cigarette. Therefore, tobacco
companies are facing a great drop in their demand which is a private cost
to them.
Price of Cig
Ss

: loses made by
Tobacco Companies

D
D
Quantity of Cig

When demand of traditional cigarettes dropped from D to D, the

equilibrium moved from P to P and quantity demanded moved from Q to
Q. This caused a huge impact to Tobacco Companies. Hence, in order to
neutralize negative impacts from e-cigarettes, tobacco companies started
to develop or to buy e-cigarette brand to enter the market. For example,
British American Tobacco (BAT) which bought Vype.
E-cigarette which is unregulated by British Medical Association
(BMA) might provide a loophole for producers to conceal the materials
that might be more harmful than tar or tobacco. Hence, in this case,
people dont actually know what are they inhaling. Although is it stated
that users are able to control the amount of nicotine they inhale and
slowly weaning their addictions, but it might be possible that they are
taking in more nicotine rather than less. In a research, it says that cancer
patients who tried to quit smoking by using e-cigarette were actually more
nicotine-dependent. Therefore, it could be clearly seen that there might be
highly nicotine addiction which will bring permanent injury on brain like
difficulties with attention and memories among e-cigarette users.
Besides, e-cigarette which is still unregulated by UK government is
able to advertise on TV and to selling to buyers at any age on the Internet.
E-cigarettes are also doing promotions and sales to youth at the 20%
discount of 56.98. In order to get demand from youth, e-cigarettes are
invented with different flavors like candy and fruits which are specially
targeting youngsters. According to Ashs report, there is a worrisome
increase in number of youth who is using e-cigarette and this is a net
harm at population level.
UK smoking ban put in place in 2007 effectively eliminated tobacco
smoking of any kind from all public places. This included government
buildings, pubs, restaurants, bus and train stations, etc. But, e-cigarettes
are not included in that ban can be enjoyed in many public places where
smoking is normally banned, such as theaters and restaurants. The main
reason behind this is the fact that e-cigarettes do not produce smoke. By
definition, the smoking ban only applies to practices that do produce
smoke. Though e-cigarettes do not emit second-hand smoke but it will
emit vapors which might be harmful. When e-cigarettes are not restricted
under smoking ban, it will definitely increase passive vaping and hence
lead to increasing number of health issues especially respiratory diseases.
This will be a worrisome situation when tobacco companies started
to enter e-cigarettes market. This is because tobacco companies might
begin to market e-cigarette as companion product, rather than a
substitution for regular cigarette in order to maximize their profit. This will

then reduce quitting and cause simply using of e-cigarettes when and
where users cannot smoke a regular cigarette. This is totally a clash with
the market image of e-cigarette when it was first launched.
As conclusion, UK government is still uncertain about how to
respond to e-cigarettes as different parties are having distinct
perspectives. Smoking Toolkit Study in England shows that there is an
actual drop in smoking population and there is a continuing fall in smoking
rates. The UKs drug watch-drug has decided they must be regulated as
medicines to make the products safer and more effective. But some
parties claimed that e-cigarettes should be banned as this product is
generating more costs than benefits to the society and these costs might
be too huge that the society arent able to afford it. Anna Gilmore who is
the director of the Tobacco Control Research Group at the University of
Bath and UK Centre for Tobacco and Alcohol Studies said that they cannot
say e-cigarettes are risk-free. They cannot yet be sure what impact they
will have on smoking rates or population health, They just dont know
whether e-cigarettes will be the miracle product or not. In my opinion, UK
government should imply flexible policies which coordinate with the
demand and supply of e-cigarettes to neutralize undesirable results and to
achieve social optimum level.