The U.S. government regulates the sale and distribution of tobacco products in many ways. Some examples of the way the government regulates are setting an age limit and taxing tobacco products. In the economic world, the tobacco wars are a serious issue. The sale of tobacco as we know is very inelastic.
The government puts heavy taxes on tobacco products to cut down on the sale of them. They know that the people will buy cigarettes no matter how much they cost. Elasticity has a lot to do with the taxation of cigarettes. The relatively low price elasticity of demand in the tobacco market results in higher tax revenues than in any other type of market. The government knows that the demand of tobacco is high enough that they can apply these stiff taxes. Cigarette taxes work as a steady source of revenue for the government. There will be some people that will stop smoking, but there will always be those people that will not. The demand will always still be there unlike other market products.
Another reason why the government wants to regulate the sale of tobacco products is to cut down on the number of underage smokers. All throughout the United States you must be eighteen years of age to buy a pack of cigarettes or any other tobacco product. The government does not want the youth to start smoking at an early age because of the higher risks of cancer and other smoking related problems. They know how addictive tobacco is and how hard it is to kick the habit once you have started. There have been many studies showing that people who smoke cigarettes are more likely to die from such diseases as cancer, emphysema, and asthma. On every single pack of cigarettes there is always a Surgeon General’s warning on it. This warning is used to let society know that there are consequences to smoking.
Anti-trust regulations also have a great deal to do with the sale of tobacco.Tobacco companies tend to practice oligopolization. Oligopoly describes a market with only few producers and its entry into the market is relatively difficult. Government wants to control these private powers. Cigarette companies all work together to set their prices. If one company lowers or raises their prices the other companies will take notice of this and follow the other lead. From the early twentieth century tobacco companies have always had to deal with all types of anti-trust regulations. The laws are based on the principle of conserving and encouraging a free and competitive marketplace. In the early days of tobacco sales, the government was afraid that the companies might be trying to monopolize the market, and set up its first antitrust law called the Sherman Act of 1890. The real reason of the trust was to promote efficiency and to get rid of weak entrepreneurs. They wanted to break up the market so not just one company would have all the power. In reality the laws just caused the top four tobacco companies to become more powerful.
There have been many price changes in the sale of tobacco products throughout the years. Even during the Depression tobacco companies were able to raise prices because people would buy the product no matter what. I feel that if the government really does now want people to smoke then they should just make the product illegal. If not, continue to tax the sale of tobacco and make people pay. There are always going to be externalities out there that are going to affect the market, positive and negative. People that say that smoking is bad and those who just want to be left alone to smoke. Cigarette smokers are paying for a very expensive habit and as long as the government gets money off of it then I don’t see what a big problem tobacco use is. The government is the third party in the tobacco market and is basically getting a free ride off of them.