Law of Diminishing Returns

In 2001 Pierre Lemieux studied the law of diminishing returns in his article “The Diminishing Returns to Tobacco Legislation” (Retrieved: January 11, 2012, http://www.pierrelemieux.org/artdiminish.html). Mr. Lemieux presents information that 77 countries had issued health warnings about tobacco products for the last 10 years. He also made a point that individuals who were close to quitting, decided to quit based on the addition of the warnings on the outside of the cigarette package and mild prohibition (i.e. smoking in front of businesses, etc.). Nowhere in his article did he explore other factors which may have lead to this small decline which could have included the increase in cost, increase in taxes, education, etc.

Using the information presented in Mr. Lemieux’s article, the point of diminishing returns for the government would be when the shock value wears off. The government may be able to make small “victories” by adding multiple shocking messages to the packaging of the product; however, once consumers have gotten over the shock of seeing the graphic depictions of tobacco use, the consumption rate would return to normal.

(Angus Reid Public Opinion - "Canadians Welcome New Graphic Warnings on Cigarette Packages". Retrieved February 3, 2012, from: http://www.angus-reid.com/wp-content/uploads/2011/01/tobacco1.jpg)

Other solutions that would increase the government’s success compared to their costs could include new legislation such as no smoking in cars with minors and creating programs that would make change from within. Increasing taxes and making tobacco a prohibited item would only put tobacco onto the black market and could lead to an increase in the demand of the product.

The implication on supply and demand with the inclusion of the pictures on the cigarette packages would at first lower the demand. The supply would decrease until a new equilibrium was reached then will increase again once demand stabilizes.

Increasing taxes, also known as “sin taxes” for tobacco would have no affect on the demand since the product is inelastic; however, it would increase the government`s total revenue.

In conclusion, I do not believe that adding graphic warnings to the covers of tobacco products would affect the demand. Initially, demand would decrease; however, would recover and stabilize. The shock factor of these graphics only last so long until the value wears off. The government should explore other creative ways to get the health messages across to the consumers of tobacco in order to create a steady decline of tobacco users.