In JaeSeung’s post “Tobacco Price Up Through the Air in South Korea”, she mentioned that Korean government will double the price of tobacco in order to decrease the consumer demand, which will influence the tobacco industries, convenient stores, etc. Her answer to the question that “is it acceptable to sacrifice the economic gain for those businesses to pass this proposal” is yes. However, I have different opinions.

The behavior of doubling the price is equivalent to setting the minimum price, which will cause excess supply. In other words, doubling the price will not only sacrifice the economic gain, but also cause the waste of resources and labor.

Increasing the price to reduce demand is possible, because according to economic theory, when price increase, the demand curve will shift to the left, and then lower the equilibrium quantity. Nevertheless, this phenomenon is theoretical, in our real life, some people are habit-formed of smoking and some of them are poor. When the price increases, these people might buy alcohol from some illegal ways, which might lead to the existence of black market. In addition, tobacco should be an inelastic product, which means that the change of demand will be less than the change of price. That is to say, this method is not efficient.

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Here are my suggestions:

1. In the short run, the tobacco industries should print the anti-smoking ads on the packs spontaneously. For health consideration, some people might smoke less. Although, this may reduce firms’ total revenue, this behavior is also about the social responsibility of business, which might let costumers have a good impression to these firms.
2. The government should pay more on education, especially for teenagers, and let people know the dangers of tobacco. This should be the long run solution, which can solve the problem fundamentally.