As a government official, Nolan wants fewer people to smoke. He has decided to use taxes to discourage people from smoking. How would he describe his decision to an economist?

An increase in taxes on cigarettes will lead to price increase, reduction in demand and hence, fewer people would smoke.

Explanation:

An externality is is the benefit or cost or benefit that a third party who is not involved in the economic decision bears. Externalities occur when the consumption or production of a good or service's does not reflect the true benefits or costs of the product to the economy as a whole.

Negative externality is a cause of market failure. Negative externality is defined as the negative effect of the production or consumption of a good or service on a third party. To curtail the rate at which people smoke, taxes can be used. When taxes are imposed on the producers of cigarettes, this will lead to increase in price and hence there will be decrease in demand which will reduce the number of smokers.