Austria, one of the few European countries who still hadn’t, has finally imposed a smoking ban on all restaurants, bars and cafes in the city. This comes as welcoming news to those non-smoking Austrians and tourists, as the country had in recent years been referred to as the ashtray of Europe.
Compared to other European countries, Austria are far behind the times, with the UK and France imposing similar bans in 2007 and Holland even earlier in 2002. Whilst damaging perhaps to cigarette producers, the positive effect this ban will have on the negative externalities from smoking could be huge.
Effect on what?! Externalities… ok quick recap. Externalities are the positive or negative spill over effects on third parties from a private transaction. In this case, the smoker buys cigarettes from a producer and they receive revenue for the transaction. The smoker gets to enjoy their cigarette and satisfy their addiction. The effects however, do not stop there…
Firstly, non-smokers now have to put up with the horrible smell of smoke. This will lead to some dissatisfaction. Secondly, it could lead to increased litter on the streets if cigarettes and their packaging is not thrown away properly. Thirdly, that second-hand smoke could actually lead to damaging health effects on others, especially children. Finally, whilst the effect on the health of the smoker is not an externality, the extra burden that their problems could put on the healthcare system are. In the EU, smoking is the most common cause of premature deaths and is the result of approximately 700,000 deaths a year. If these health problems could be reduced or avoided, millions would be saved by our healthcare systems freeing up more money for research into other areas or providing more care for those naturally occurring medical conditions.
So there you have it. Smoking not only harms the smoker, but the habit causes a lot of damage to the wider economic community as well. So good job Austria for imposing this ban! Let’s hope more and more countries around the world continue to follow suit!
Think like an Economist!
Q1. What is meant by the term externality?
Q2. Explain why a smoker places extra burden on the healthcare system.
Q3. Not all externalities are negative. Describe a positive externality that exists in the economy where you are from.
