For economy question?

Question

1. In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer.

Answer 1

The answer to the question is both yes and no on theoretical grounds. Advertising restrictions such as those on cigerattes and hard liquor do impact adversely so far the sale of cigrattes and hard liquor are concerned. Thus the tax revenues automatically decline. But this short-term relatively high elasticity of demand to such horrible advertising restrictions or ban on advertising reflects a knee-jerk eaction of the cigratte smokers or drinkers.. Smoking and drinking are bad addictions. Most people continue to smoke or drink even if the advertising is restricted or banned. Those who are addicted know where to go to buy what kind of cigerattes or hard drinks. Almost everyone returns to their original level of consumption of these kinds of goods within a short while.