Final answer:
To discourage the use of cigarettes, the government can increase taxes, affecting both tax revenue and consumption. The reduction in cigarette usage depends on the elasticity of demand, with higher taxes potentially leading to less consumption, especially in elastic markets like youth smoking.
Step-by-step explanation:
If the government wishes to discourage the use of certain classes of products, such as cigarettes, it can increase taxes on cigarettes. Taxes on cigarettes have a dual purpose: they are intended to raise tax revenue for the government and to discourage cigarette consumption. When the government considers the impact of altering cigarette taxes, it must analyze the elasticity of demand—how sensitive consumers are to price changes. Higher taxes can lead to a significant reduction in cigarette consumption if the demand is elastic, particularly among youth, who are typically more responsive to price changes.
Moreover, persuading smokers to quit using public programs and anti-smoking advertising campaigns can also shift demand. It is a balancing act: too high a tax might lead to reduced revenue if sales decline sharply, while too low a tax might fail to curb smoking effectively. Firms face a similar dilemma when setting prices for their products and services.