According to Patrick Welch and Gerry Welch, externality is “the effect of an action on a person or thing that was not one of the parties involved in the action.” In other words, the cost and benefits of an action to one may differ from the cost and benefits of the same action to the society. Take smoking for example. Although the smoker and cigarette seller both benefit from cigarettes - namely the seller makes a profit and the smoker gets what he wants - society may not receive the same benefits. Instead, society has to face the costs that smoking causes. To better understand this, one should consider the costs. A pack of cigarettes is about $4.80 and this pack would become $10.45 when considering medical and lost productivity costs.
On a national scale, smoking costs up to $170 billion per year in health care expenditure. Over 60 percent of money spent on treatment was paid by public programs such as Medicare and Medicaid. On the other hand, productivity losses totaled $150 billion a year. This number can be examined at a smaller scale where researchers Ping-Yung and George Agyekum-Mensah studied the amount of smoking breaks that construction workers took and its effects on productivity. The results illustrated that the average construction worker smoked 6 cigarettes, which equates to a total of 73 minutes of break in an eight-hour workday. Furthermore, this productivity loss is exasperated by an increase in sick leaves requested by workers who smoke.
Based on the statistics above, one concludes that smoking burdens government programs, increases health care costs, and harms the economy due to loss of productivity. However, the controversy associated with this externality is that it also affects other people.
Those who are around smokers may become second-hand smokers. Just like smokers, they also become more susceptible to smoking-related diseases even though they do not smoke. Consequently, not only smokers, but also the second-hand smokers are burdens to the society. If smoking becomes more prevalent, more smokers and second-hand smokers may develop lung disorders, which increases hospital costs and decreases productivity because those affected may not be able to work due to sickness. In addition to the second-hand smoking effect, inhaling nicotine may also lead to premature death, lung cancer, fire accident, and even climate change.
In order to reduce the external effects of smoking, the government should impose taxes on nicotine products, which will generate revenue for the government, while raising the price of cigarettes. Moreover, schools should implement programs that educate students about the consequences of smoking. Based on current research, both solutions have proven to be effective in reducing the number of smokers. Studies show that a 10 percent price increase in cigarette products (due to taxes) led to at least a 4 percent decrease in smoking prevalence anywhere in the world. Taxing smoking products also generated revenue for the government to spend on educational programs to encourage kids not to smoke. Research illustrates that creating anti-smoke programs at school effectively reduced smoking by 12 percent.
Bottomline: for teenagers who smoke or consider to smoke, you guys are part of the minority. Only 5 percent of teenagers smoke cigarettes. The other 95 percent do not.