Austrian Government on Teenage SmokingResearch Question:To what extent is the Austrian governmentattempting to reduce smoking rates among teenage smokers?Word Count: Table of ContentsIntroduction…………………………………………………………Page 4Methodology ……………………………………………………….Page 5Data and Analysis………………………………………………….Page 7Economic theory on Market failure..………………………Page 7Economic theory on Negative externalities……………….Page 7Negative externalities of consumption of smoking……….Page 8Smoking in Vienna………………….………..……………..Page 9Governments methods to resolve…………………………..Page 10Conclusion and Evaluation…………………………………..……Page 17 To what extent has the Government policies changed consumption?…………………………………………………………Page 17Should policy or implementation be modified……………Page 17What are recommended change………………………….Page 17Bibliography ………………………………………………………..Page 18Appendix…………………………………………………………….Page I. Introduction Smoking is considered to be one of the most dangerous health hazard. Countries around the world try to minimize cigarette consumption. This is done to protect citizens in the country. The two objects that are highly related to smoking are cigarettes and tobacco. These two do not only cause health problems for the smoker, but also affects people who are second hand smokers.”Cigarettes today deliver more nicotine more quickly than ever before”. Nicotine is a highly addictive drug, so cigarettes are now more addictive than ever. Governments around the world have imposed economic and social policies to minimize the consumption of cigarettes which is a profitable area in the market. The Austrian government is already dealing with this problem by introducing the Tobacco Products Directive (TPD). This discusses about the reduction for smokers in Austria. The Austrian Government realizes that there is high smoking rate among teens in Austria. A report from the Eurobarometer 2012 has also found an “increase of smoking prevalence in Austria from 31% (2006) to 33% (2012)”.The government knows that the tobacco industry is growing and wants to protect the society especially the future generation.According to the information in the previous paragraphs, Austria, currently has a higher smoking percentage per capita than any other countries in Europe by 8 percent with a total of 47 percent in smoking per capita. It is indicated that almost half of the country smokes. Austria is well known for the smoking rate, but also the rate of teenage smokers.Currently 25 percent of 15 year olds smoke in Austria, which is the highest rate in Europe. Thus, this essay will investigate the following research question: To what extent is the Austrian government attempting to reduce smoking rates among teenage smokers.The Capital of Austria is Vienna. Taking Vienna as the case of study would make the integration of the more accessible due to the reports collected by the government about teenage smokers in Austria as well as having more accessible data as it is the city where I currently live.II. Methodology To answer this research question there was several objectives that need to be done to get the answer. The first step was to research the basic economic theory of Market Failure. Then Negative externality and finally negative externality of consumption. I researched these through the class textbooks and websites discussing about the specifics in consumption. The next step was to investigate the consumption of cigarettes in Austria. This was done to clearly understand the facts overall in Austria and how it compared to the world. I used secondary sources from databases that collected the smoking rate around the world. It was interesting to find out the place in which Austria placed in the world. Austria is currently part of the top 10 countries with a high smoking rate in the world. To investigate this in more depth it was necessary to narrow the broad topic of smoking in Austria to teen smoking in Austria. This had narrowed my investigation to the pinpoint on the way this extended essay his heading towards. I used internet websites and local news which discussed about the teenage smoking rate among Austria. The next step was to find out how the government was involved in dealing the smoking rate in Austria. This was researched through internet websites that had news from the Austrian government. In order to find a clear answer it was necessary to research about the ways that the government was planning to decrease the smoking rate amount there country. Secondary sources is very useful, due to the information that was confirmed by the government and what laws are going to be implemented in the future years. To strengthen the laws that were going to be implemented, I conducted an interview with the Health Minister of Austria, Dr. Pamela Rendi-Wagne, to get the full insight about the laws that were going to be implement in the following years. I also collected her opinion on the current circumstance of Austria with their smoking rate. The final step to answer this research question is to conduct a survey on teenagers. This survey contains scenarios which describe different cigarette values and general question about the government involved with the smoking rate. This helps me realize first hand what people believe about the cigarette laws in Austria.III. Data and AnalysisEconomic theory on Market failure:There is different types of market failure: positive and negative externality of consumption/production. These occur when the production or consumption of a good or service has an effect upon the third party. If the effect is harmful, then negative externality will be discussed. There will be external cost that will be added to the private costs of the producer or consumer to reflect the full cost to society. If the effect is a positive towards the society, then we discuss about a positive externality. An external benefit to add to the private benefits of the producer or consumer.Economic theory on Negative externalities:There are two different type of negative externalities, production and consumption. Production occurs when a production of a good or service creates external costs that are damaging to third parties. This is mostly related to environmental problems. This will have the marginal private costs of the firm below the marginal social cost, as there is an extra cost to society. This means that the firm is not producing at the socially efficient output, where the marginal social cost is equal to the marginal social benefit. The negative externalities of consumption occurs here, the marginal social benefits in less than the marginal private benefits. While the marginal social cost will equal the marginal private cost. “The private utility is diminished by the negative utility suffered by the third party.”Economic theory on Negative externalities of consumption of smoking:Smoking is a demerit good because it has a negative impact on the consumer and it is harmful to the third party. It is also a demerit good because it has negative externalities. This is due to their characters, producers get huge profits from them. So they are over provided in the market, just like alcohol. People who smoke probably enjoy some private benefits of smoking, but this will create an external cost for the people around them. This is known as secondhand smoking. Apart of the annoyance of the smell of cigarettes, the “cost to others are significant and include lung cancer, bronchial illnesses, and asthma”, to name only a few. This is due to the reason that there is a free market, “consumers will maximize their private utility (benefit)” and consume at the level where MPC=MSC=MPB. They will ignore the negative externality that they are creating. This will mean that cigarettes will be over-consumed by smoking Q1 cigarettes at a price of P1. The Socially efficient output is at Q and so there is over-consumption of Q to Q1. Since MSC is greater than MSB for these units, there is a deadweight loss to society as the government is supplying the society ‘too much’ cigarettes indicating a market failure Diagram 1: Negative Externality of Consumption.Smoking in Vienna The smoking rate in vienna had increased as “the average age at which young people began smoking had fallen to 11”. Compared to the other countries in Europe Austria is one of the few countries that have a buying age of cigarettes of 16. Manfred Neuberger, head of the preventive-medicine division at Vienna Medical University, said that “The younger one begins, the worse the consequences will be.” Austria is still one of the highest smoking rates among young people in Europe. “More than 50 percent of men between the ages of 18 and 28 and some 34 percent of women of the same age smoke.” In a report in 2013 indicated the “European ranking based on tobacco price increases through taxes, smoking restrictions at work and in public places, consumer information, tobacco advertising and promotion bans, health warning labels and access to smoking cessation therapy, Austria had the poorest score”. Through this report the following year the youth smoking did not change. This is indicating that even though the Austrian government is increasing the tax within cigarettes it is not changing the figures. This is due to the smoking culture in Austria .There was a survey given out to the public saying that ” 21% of Austrians reported in 2012 that smoking restrictions in public places was a motivation for stopping smoking.” “The 2012 Eurobarometer reveals” that “Austrians smoke average 18.3 cigarettes a day.” The government have already introduced the “Tobacco Products Directive (TPD) provides an opportunity to strengthen standards in terms of tobacco legislation.” This law is already in action. The TPD, requires a “picture and text health warnings cover 65% of the front and back of cigarette packs.” Since 1997, the amount of austrian youth who smoke has been steadily increasing.Government methods to resolveThere are several ways the Austrian government could act to reduce or eliminate the negative externality. The first option the government can do is to ban cigarette smoking completely, and making illegal to smoke. This is not very simple, since this will affect the tobacco industry, specifically for shareholders and employment. This is also not a “realistic option for fighting widespread addiction problems”. The Austrian Governments also make a lot of revenue by taxing cigarettes. In Austria it is currently “77% of the retail price of cigarettes goes directly to the state.” This has a price inelastic demand, because they are habit-forming. The Price elasticity of Demand (PED) is a “measure of how much the quantity demanded of a product changes, when there is a change in the price of the product”. Different products will have different PED values. There are two determinants presented: The first one being the number and closeness of substitutes available is an “important determinant of PED”. The more substitutes for a product the more elastic the demand will be for it. The closer the substitute, the more elastic the demand. Secondly, the time period considered. As the price of a product changes, it will take time for the consumer to change their buying and consumption habits. PED will be more inelastic in the short term then it will become elastic. Governments also need votes and smokers are most unlikely to vote for a government which bans smoking. Many Governments around the world have implemented partial bans on smoking. If they have “made it illegal to smoke in certain places”. This is already taken place in Austria as the “Austrian court bans people from smoking in their own homes with the windows open or on a balcony in case the smell upsets neighbours”. This is only a one of the laws that are taking place. Another small law is that the Austrian government last year announced plans to introduce a “total smoking ban in cafes and restaurants by 2018”. The major law that would change the smoking rate in Austria will be that the “Austria’s minister for families is calling for a ban on smoking for children younger than 18 years old.” This will lower the smoking rate among teens with this strict policy. This will move the MPB (Marginal Private Benefit) curve to the left. This will reduce the negative externality and eliminate the welfare loss. The Quantity supplied will decrease and the Price of the cigarettes will also decrease. The MPB will equal the MPS which also equals to Demand. Diagram 2: Prefect MarketAustria is currently one the few countries in Europe which “allow smoking at 16”. This allows a greater demand for cigarettes in the country. It doesn’t only increase the demand, but also the supply of cigarettes in the country. This makes cigarettes more accessible within Austria. The health problems in Austria may grow with the low age restriction for buying cigarettes. Diagram 3: Daily smokers by age group in EuropeShown above is collected information from the Europa.eu, it is a bar graph of smokers in different age groups in 2008. As the collective data shows Austria being the highest smoking rate between the age 15-19 years old. Austria has the highest teenage smoking rate in europe with a total of 23 percent of the country being made up of teenage smokers. The next closest country with a high teenage smokers is Hungary with a total of 20 percent. Austria’s smoking rate is lead by the age group between 20-24, with a total of 35 percent of the country. If the Austrian government want to reduce the rate among teenage smokers, they will need to apply the methods mentioned above.With an interview with the Austrian health minister it was made clear that “A total ban is not a realistic option for fighting widespread addiction problems. With a rise of awareness, medical and psychological support in the process of giving up smoking and making certain public places smoke-free, first important steps are taken to make the overall health on the Austrian population better.” Another way the Austrian government will act to reduce the negative externality will be by using the new “Tobacco Law (TNRSG – Tabak und Nichtraucherschutzgesetz).” This is a “compromise between the coalition partners (SPÖ and ÖVP), which took the Austrian tobacco policy to new heights.”. The Austrian health minister mentioned through an interview that this law will: “prohibits cigarettes and roll-your-own tobacco with characterizing flavors. Requires the tobacco industry to report on the ingredients used in tobacco products. This will Require Health warnings on tobacco and related products. Combined (picture, text and information on how to stop) health warnings must cover 65% of the front and back of cigarette and roll-your-own tobacco packages. Bans promotional and misleading elements on tobacco products, e-cigarettes and herbal products for smoking .Prohibits internet sales of tobacco and related products.” This will decreases the marginal supply of cigarettes within the country, but it will change the The Private consumers and will shift the curve to the left. This will mean that the marginal social benefit will equal the marginal private consumption.The Minister’s goals this year by “May 2018 all nine child and youth protections laws of the regional states (Bundesländer) will be changed, so that buying and selling tobacco products to minors will be prohibited (now buying and consuming tobacco products is allowed from 16).” This will massive change figures within the country to the smoking rate among teens in Austria. Buying cigarette products for minors will be more challenging and the demand for cigarettes will drop. This will shift the Marginal private Benefit to the left. The next way the Austrian government is attempting the smoking rate among teens will be with Franz Pietsch, who works for the Ministry of Health and is responsible for the protection of non-smokers. He told the Österreichischer Rundfunk (ORF) “that the machines could be removed.6,500 cigarette machines may have to be removed from Austrian streets because they don’t comply with EU regulations, as they don’t carry warning messages or graphic images concerning the health effects of tobacco.” This ensures that the the consumers that are going to buy the cigarette will know what the harm of smoking the cigarette. It will make some smokers stop because they have understood that it can lead to lung cancer then death. In order to enhance this research question it was necessary to involve the teenagers in Austria who smoke under these laws and current money. In order for this data to be precious I contacted students between the age 15-18 and instructed them to take a survey on their smoking habits. I have received a large response from the teenagers that have answered the survey. One of the question within the survey asked about the percentage of the money you own goes to the purchase of cigarettes? The answers that were collected from that specific question was interesting as 50% of people that answered this survey answered that only 10% of their money goes into buying cigarettes. This indicates two views, the first being that cigarettes are not a huge demand for them even though they smoke regularly. The second is that they are relatively wealthy and only 10% of their money goes to the purchase of cigarettes. What was interesting trend from the teenagers that have answered the following survey. It was the following question: How many packs you still buy Cigarettes would you buy if the government lowered/increased the price of a pack of cigarettes to €2/6/10? The trend was that all the people who answered the survey would buy between 8-10 packs per month for the price of a cigarette pack being 2 euros. When the price increases to 6 euros the demand decreases to 4-5 packs per month. The final increase to 10 euros really surprised me because a 70% of the people replied with the answer of 1-2 packs when the other 30% said that they would not buy a pack per month. This indicates that as the price of a box of cigarettes increases the demand for the cigarettes falls significantly. This will diminish the welfare loss created by the MSC being greater than MSB. IV. ConclusionTo what extent has the Government policies changed consumption?At a national level, the policy is for sure to be changed since the consumption of Cigarettes is very high among teenagers in Austria. The production of Cigarettes creates job for the community and gives revenue from the tax since the major tobacco companies have powerful owners. The Austrian Government may say that they are doing something about the consumption of cigarettes, especially on teenage smokers. The evidence on the other hand shows that they are not doing anything about the the level of tobacco consumption. Should policies or implementation be modified?Even though the government is implementing policies to decrease the consumption of cigarette, the outcome of these policies do not seriously reduce the production and the consumption of cigarettes. Reports show that there is an uprising of teenage smokers, therefore policy should be modified.What are the recommended changes?The policy of increasing cigarettes tax up to 74 percent to 80 percent. Which has been examined that it will diminish the number of smokers. It will still give the government an income and decreasing the consumption of cigarettes. When this is applied it must be sure that the government has a plan B for the tobacco workers. The minimum age of the purchase of cigarettes must be increased to the age of 18. This will make the law more strict upon cigarettes. The next necessary step for the government will be increasing the age of consuming cigarettes. This is because it will have a decrease in the smoking rate among teens. There should be a restriction on advertisement and or cigarette sponsorship or cameo any event that involve youth and or mass media. This is mostly targeted towards youth community. There should be an increase in the advertisement for anti smoking commercial to indicate the health issues smoking can have upon someone and the people around them. The distribution of revenue from the tax has to be put into the place where the country has the most problems, societal externalities of cigarettes, second hand smoking, environmental pollution, and any efforts that tend to protect the society especially the future generation. Changing these policies will prove that the government is keen to deal with smoking problems in the country by implementing these policies.V. BibliographyBlink, Jocelyn, and Ian Dorton. Economics: Course Companion. 2nd ed. Oxford: Oxford University Press, 2012. Chapman, Lisa. “Austria Tops Teen Smokers Ranking.” Wiener Zeitung. Last modified November 4, 2009. http://www.wienerzeitung.at/nachrichten/english_news/67654_Austria-tops-teen-smokers-ranking.html. European Public Health Alliance. “Smoking in Austria: It Is Time to Act Now.” European Public Health Alliance. Last modified July 8, 2014. https://epha.org/smoking-in-austria-it-is-time-to-act-now/. The Local. “End of the Line for Cigarette Vending Machines in Austria.” The Local. Last modified January 13, 2017. https://www.thelocal.at/20170113/end-of-the-line-for-cigarette-vending-machines-in-austria. May, Frank. “Austrian Family Minister Wants Full Smoking Ban for Under-18s.” RT. Last modified January 2, 2017. https://www.rt.com/news/372498-austria-ban-smoking-teens/. Rendi-Wagne, Dr. Pamela. “Extend Essay Teenage Smoking.” E-mail message to author. September 13, 2017. U.S. Department of Health & Human Services. “Nicotine Addiction and Your Health.” BeTobaccoFree.gov. https://betobaccofree.hhs.gov/health-effects/nicotine-health/index.html. Whelminger. “Young Daily Smokers by Age Group, 2008.” Chart. eurostat. April 3, 2015. http://ec.europa.eu/eurostat/statistics-explained/index.php/File:Young_daily_smokers_by_age_group,_2008.png.