THE SMOKING BANIn July 2007, England came into line with

the other countries in the UK when a smoking ban was introduced in public

places.

EXTERNALITIES. An externality is when a third party is

affected by the effects of production and/or consumption of a good or service for which no compensation is paid.

An example of an externality in context with the smoking ban could be second hand smoking, or passive smoking. This is an effect of cigarettes that no compensation is paid for.

EXTERNAL COST AND BENEFITS. An external cost is a cost that a producer or

consumer imposes on another customer or consumer out of any market transaction between them.

An example of an external cost would, again, be second hand smokers.

An external benefit is a benefit someone gains out of someone else’s action, outside any market transaction between them.

An external benefit from the smoking ban could mean that people don’t have to pay as much tax because less money is being spent on the NHS.

PRIVATE COSTS AND BENEFITS. The private cost is the financial cost of

production incurred by firms. An example of private cost would be the

cost of spending money by businesses on ‘outdoor areas’ for smokers.

The private benefit is the profit made by firms and the value to people of consuming goods and services.

An example of a private benefit would be businesses would have more customers, as they wouldn’t be deterred by smokers.

THE EFFECTS OF THE SMOKING BAN. Sales had decreased by 7.3% in the five

months since the smoking ban was introduced.

58% of licensees said that they had seen smokers visiting less regularly.

73% had seen their smoking customers spending less time at the pub.

The British Beer and Pub Association (BBPA) sustained a fall in sales of 7%.

COMPLEMENTARY GOODS. A complementary good is

something that you need for a product to work. The demand for one product will affect the demand for the other.

Examples of complementary goods for cigarettes would be cigarette lighters and ashtrays.

SHIFTS IN DEMAND

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