Switzerland’s Controversial Ban on Tobacco Products
- Timothy Wong
- Oct 28, 2024
- 2 min read
Written by: Justin Cheng Edited by: Timothy Wong
The Switzerland government is imposing a ban on advertising of tobacco products aimed at young people, due to the addictive and harmful nature of tobacco products.
The problem faced by the Switzerland government is that tobacco products cause a negative externality of consumption. For tobacco products, the marginal private benefit is higher than the marginal social benefit, which means there are external costs that a third party has to pay, usually the government. This is likely the culmination of increased medical costs and decreased efficiency of citizens. In this case, this externality cost is stated as ₣3.37 billion. From the diagram where Q1 and P1 meet, it is clear that tobacco products are over consumed and overpriced compared to the allocative efficient PAE and QAE. There is welfare loss the size of the triangle of the red triangle and the trapezoid added up. The inadequate allocation of resources is market failure.
The government’s solution to this problem is to decrease the exposure of tobacco advertisements to minors through banning, a form of legislation. The idea is emphasizing prevention over cure: since tobacco products are addictive, if children are not exposed to advertisements, they have a much lower chance of developing the habit of smoking. This ban on advertisements decreases the demand for tobacco cigarettes since less consumers are willing to purchase the product at the same price P1. Following this, firms realize they have a surplus of tobacco products and decrease the price to sell off the surplus. The incentive function leads to a contraction along the supply curve and lets the market re-adjust to where P2 meets Q2 and it is clear that both price and quantity decreased, price from P1 to P2 and quantity from Q1 to Q2. The welfare loss thus decreases by the area of the trapezoid. Of course, the advertisement ban is unable to fully correct the market failure, and there is still the remaining welfare loss equivalent to the area of the red triangle.
The effects on minors is clear: many will never gain interest in the subject of tobacco smoking due to the lack of advertisements and thus never develop the habit of smoking. However, the lowered price may actually provide an added incentive for minors with disposable income to purchase tobacco products. In the long run, when addicted members of the older generation eventually grow old and fade into irrelevance, the impact of the advertisement ban becomes more clear. Many firms notice a decrease in revenue because of lower prices and lower sales; thus many are forced to shut down and/or switch industries. For the government, the policy is cheap and easy to implement. Additionally, backlash is unlikely because of 57% approval that something has to be done. The government is satisfied that the externalities are internalized and welfare loss is reduced. Moreover, the ₣3.37 billion figure can be better allocated to fixing market failure in other parts of society.
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