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A market represents the private forces of demand and supply.
Consumers aim to consume goods and services with lower prices and
greater quantities while producers want to maximize their profits. A
market diagram uses demand and supply curves to show the relationship
between market demand and supply. These demand and supply curves are
labeled as “private demand” and “private supply”, that is, the private
benefits and the private costs. But those private activities always
affect others, both positively and negatively. Those positive and
negative effects are not represented in the market model; they are
external to the market, known as externalities.
There are two kinds of externalities: positive externalities and
negative externalities. In the extract, cigarettes are negative
externality, which means they have bad effects on others and those
effects are not paid by the producers. For example, when people smoke,
especially in public places, e.g. restaurants and department stores,
they pollute the air rounded and threaten others’ health. No one pays
for the bad feelings caused by smokers and cigarettes. In this way,
“market failure” exists. If the external costs could be measured and
valued a new supply curve could be drown to present this.
In this figure, the social costs have been added to the private costs
to produce a new supply curve. The private supply curve shifts to
left. When the supply curve shifts from Smpc to Smsc, the market
prices increase from pp to ps and the quantity traded is reduced from
qp to qs.
Cigarettes are demerit goods which cause negative externalities.
Because of their characters, producers get huge profits from them. So
they are overprovided in the market, just like alcohol. The
consumption of cigarettes always has negative effects on other people.
It causes cancer, and may cut down human life-span.
In order to internalize the negative externalities, government
should interfere in the market. There are several ways to do that. One
method government may employ is negative advertising to reduce private
demand for demerit goods.
People will consider the bad effects caused by demerit goods before
purchasing or reduce the consumption on such goods that means private
demand curve will shift to right.
On the other hand, the supply curve shifts to left because of the
costs of bad effects added to the factor costs of the products. The
transaction of that goods decreases. After government applying
negative advertising to public, the total transaction will decrease
again because demand decreases. According to the diagram above, the
quantity transferred in the market drops from qp to qs first, and
then, to qt. This method is very common nowadays, especially for
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"Legislation is NOT the Best Way to Ban Smoking." 123HelpMe.com. 09 Dec 2019
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Also, government can add taxes on certain products. The taxes
would raise the factor costs of products and shift the supply curve to
left (upwards), which means to reduce the quantity supplied to the
market. In order to solve market failure, the taxes should be set as
equal as the amount of the negative externality.
For a better solution, the tax should be passed to people who suffer
the negative externalities.
If the negative externalities are very serious and cannot be ignored,
government would set up laws instead of taxes. It might totally ban
the ownership of certain goods, for example, guns and drugs.
Government can overrule the whole market. In this way, the quantity
supplied of those goods will be reduced to zero.
When the quantity supplied turns to zero, there will no quantity
transacted in the market anymore.
In the extract, The Kansas City Council was expected to vote on a
smoke-free law that would ban smoking in most workplaces and a host of
public places, including bowling alleys, pool halls and stores. They
use legislation rather than taxes. The anti-smoking campaign seems
serious in this city.
I think legislation is not the best way to ban smoking in this case.
Since most smokers cannot give up cigarettes in short-term. It is
difficult for them to obey the law. On the other hand, people may
rebel against the law; the bad effects cannot be diminished. So, in
order to solve market failure caused by smoking, negative advertising
would be a better choice, which means let residents know the
disadvantages of smoking and willing to abstain it by themselves.
 An effect of consumption or production which is not taken into
account by the consumer or the producer and which affects the utility
or costs of other consumers or producers.