Law of Diminishing Returns

The law of diminishing returns occurs when the amount of a single factor of production is increased, while holding the amount of all other (fixed) factors of production constant, at some point will yeild lower per untit returns rather than increasing production as the factor is increased.

 

In the Article "The Diminishing Returns to Tobacco Legislation" written by Pierre Lemieux, the law of diminishing returns is indicated in the following points:

• Additional reduction in tobacco consumption require more and more potent interventions.
• The phenomenon is also illustrated by cigarette taxation, where there are indications that decreasing returns have kicked in.
• One reason why government interventions agains smoking becomes less effective is that smokers who were the most easily persuaded have already quit.
• Too much information mayalso kill information
• A chapter of "Tobacco control in developing countries sites researh claiming that, indeed, the impact of information shocks a decay in time.

 

Lessening the debate on the diminishing returns on toabacco legislation can be observed throught hte following statement:

• Studies by American Economists Kip Viscuse have shown that smokers overestimate the risk of smoking, as evaluated by the public health literature and too much information may also kill information.  As advice, warnings and threats from authority become more numerous and visible, theytend to be discounted or ignored.

 

The only solution observed as a result of reviewing the article would be to impose more regulations and increase taxes.  Smokers are hard to sway, should the government be successful at their awareness program the affect would cuase a decrease in the demand and supply (shifting both curves to the left).

 

Sin taxes on cigarettes would need to continuously be increased to effectively impact consumers.  Because larger taxes would be required to achieve the same results as previously; addictive products tend to be inelastic.  Therefore, increasing taxes would have very little impact on the consumers decision making in purchasing cigarettes.

http://www.pierrelemieux.org/artdiminish.html