Question

Applying Economic Concepts The U.S. government has used many strategies to reduce smoking. It banned television ads for cigarettes, ran public service messages about the health risks of smoking, and imposed taxes on cigarettes. Which factors that affect demand was the government trying to influence?

Short answer

The government influenced 'preferences and tastes' and 'price' factors.

Step-by-step solution

Identifying the Demand Factors

To determine which factors affecting demand were influenced, first recall that the main factors affecting demand include preferences and tastes, income level, prices of related goods (substitutes and complements), numbers of buyers, and future expectations. Analyze how each government strategy aligns with these factors.

Analyzing the Effect of Banning TV Ads

Banning television ads for cigarettes aims to decrease consumer awareness and interest, directly influencing the 'preferences and tastes' factor of demand. By reducing the presence of cigarette advertising, consumer desire due to exposure is diminished.

Assessing Public Service Messages

Running public service announcements about the health risks of smoking seeks to alter consumer perceptions and attitudes, also affecting the 'preferences and tastes' factor. This strategy aims to inform and shift consumer attitudes towards smoking.

Evaluating Taxes on Cigarettes

Imposing taxes on cigarettes raises the price of cigarettes, which directly impacts the 'price' factor of demand. Higher prices generally lead to a decrease in the quantity demanded, assuming cigarettes are a normal good and income levels remain constant.

Summarizing the Factors Influenced

Conclude by summarizing the government's influence on these demand factors: 'preferences and tastes' were targeted through ad bans and public service messages, while the 'price' factor was directly impacted by the smoking-related taxes.

Key concepts

Preferences and Tastes

Preferences and tastes play a crucial role in shaping the demand for goods and services. When it comes to cigarettes, changes in consumer tastes can greatly affect the level of demand. The U.S. government effectively targeted this factor by banning television advertisements for cigarettes. This strategy decreases the visual and persuasive impact that advertising has on consumer preferences, thus reducing their inclination to purchase cigarettes.
Additionally, running public service messages about the health risks associated with smoking aims to change consumer perceptions. These announcements focus on educating the public about smoking's negative health impacts, which can shift preferences away from cigarettes. When consumers become more aware of the adverse effects, they are likely to change their tastes, leading to a reduction in demand.

• Banning ads lowers consumer awareness and appeal.
• Public service announcements educate and persuade consumers.

As preferences shift, people may start looking for healthier alternatives or quitting smoking, highlighting how crucial this demand factor is.

Impact of Taxes

Taxes are a direct and effective method to influence the demand for products, especially those with public health concerns like cigarettes. By imposing higher taxes, the government increases the price of cigarettes, which can lead to a decline in demand as prices rise. When the price of a good increases, consumers typically adjust their purchasing behavior, buying less of the more expensive product.
This strategy relies on the basic economic principle that demand tends to decrease with price increases. For normal goods, including cigarettes, as prices go up, the quantity demanded usually goes down. The government's tax strategy considers the concept of price elasticity, where the degree of demand change depends on how sensitive consumers are to price changes.

• Higher taxes raise cigarette prices.
• Increased costs lead to a decrease in quantity demanded.
• Depends on consumer sensitivity to price changes.

Through taxation, the government can discourage smoking and reduce overall consumption.

Government Influence on Market Demand

The government's role in influencing market demand extends beyond just taxation and advertising. It encompasses a broader framework of regulatory and policy measures designed to protect public health and promote social welfare. This can include setting regulations that restrict where smoking is allowed, funding smoking cessation programs, and supporting research to provide more evidence on health risks.
Such policies can shift the market demand by changing the environment in which consumers make choices. When smoking becomes less socially acceptable or more inconvenient due to regulations, consumers might reduce their consumption. This complementary approach reinforces the impacts of direct measures like taxes and ad bans.

• Regulations can make smoking less attractive and accessible.
• Support for alternatives helps transition away from smoking.
• Policies create a less favorable social environment for smoking.

Overall, the government uses a combination of strategies to reduce cigarette demand, reflecting its multi-faceted influence on market dynamics.