Effects of Minimum Price on Alcohol in Economic Way

This report discusses the effects of the minimum price on alcohol in an economic way. It explores the ineffectiveness of market outcomes, external costs imposed on society, the impact of price floors, the imposition of tax, and recommendations for the government. The demand for alcohol is inelastic, and changing climate factors can also affect the alcohol market.

ECONOMICS
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TABLE OF CONTENT
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Ineffectiveness of market outcome in case of Demand and supply of alcohol...........................3
Various external cost that are imposed on society for excessive consumption...........................4
Price floor may impact market for alcohol and the way consumption of alcohol adjusted to
effective level...............................................................................................................................4
Impose of Tax..............................................................................................................................5
Recommendation.........................................................................................................................5
Elastic and inelastic.....................................................................................................................6
Impact of changing climate.........................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
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INTRODUCTION
Alcohol is currently one of the prime need of people in many places. In the western
culture, most people daily consume alcohol, because it is term of joy for those people. Currently
many people have addicted to take alcohol, that’s companies or businesses who produces alcohol
has succeeded in gaining large market share in all around the world. There are many factors
always affects demand and supply of alcohol products in the international market, like
geographical factor, economic factor, social factor, income factor etc. In this situation, currently
demand and supply of alcohol is completely depending on these all factors. This report mainly
discusses effects of the minimum price on alcohol in economic way. Basically, governments of
the different countries including Australia are considering implementing a minimum price on
alcohol.
MAIN BODY
Ineffectiveness of market outcome in case of Demand and supply of alcohol
Demand refers to desire of large number of people to purchase particular products and
services by paying specific amount of money. There are various factors that lead to increased in
demand of products but among them prices is most important component that impact on demand
of products such as alcohol. On the other hand supply refers to amount of products and services
that individual is like to sell at particular price in order to earn profit. Demand of alcohol is
continuously increasing in Australia that has impacted adversely on health of people so
government has set minimum floor price of product. Therefore it can be stated that price is most
important factor in getting effective market outcome (Catalini and Gans, 2016). But in Australia
there is large demand of products and services instead of rise in price of alcohol this is due to
high addiction of people toward such drink. Supply of products increase with increase in demand
but price of alcohol is not decreased due to high tax rates and various restrictions such as
minimum price that need to be charged from customers. Thus, it can be illustrated that despite of
changes in supply and demand of products market outcome were ineffective due to high control
and intervention of government in manufacturing and supply of alcohol products. Total surplus
in society is reduced in Ineffective outcome market due to price control because it is blocking
both consumers and supplier to make transaction as per government set standard (Athey, 2018).
Price ceiling or tax is another method that is used by government in which burden of producer is
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transferred to final consumers. Thus, loss to customers is more than loss to producer of products
and services which resulted in decrease in demand of products.
Various external cost that are imposed on society for excessive consumption
Government in order to make alcohol expensive has set minimum floor price of alcohol
that mean it cannot be sell beyond specified price. But this strategy was implemented in most of
the countries such as Canada that have shown better result and outcome in term of reduction of
alcohol consumption and alcohol related violence (Iyer, 2016). Thus, government has increased
price of alcohol to reduce demand of products and ensure better health of people. High tax rates
were also imposed on society so that consumption of excessive alcohol can be limited within
society. Two extra cost levied on alcohol products resulted in decrease of demand and supply of
products and services in Australia.
Price floor may impact market for alcohol and the way consumption of alcohol adjusted to
effective level
Government of Australia by setting minimum floor price or standard price below which
no one can sell alcohol to other people within country has adversely impact market of alcohol.
Due to high cost of alcohol many people has reduce their consumption of drink in daily life
which lead to better lifestyle and reduction in various health issues that are faced by people.
Supply of products have been moderate or reduce due to decrease in consumption of alcohol
among younger generation in Australia. Due to decreases in demand of products supply will
automatically decreased thus resulting less availability of alcohol for people to consume. At the
same time it can be purchased by rich people as it will make difficult for low income group
people to make purchase of products and services at high rates (Kirshner, 2018). Therefore it can
be stated that minimum floor price set by government impact market of alcohol in term of
demand and supply. People tend to change their taste and preference and minimise use of alcohol
drink for better health and safety. Firm by effectively analysing demand and supply of alcohol
products in the market will decide to manufacture specific amount of alcohol so that need of
customer can be satisfied. Thus consumption of alcohol will adjusted to effective level of price
floor or in other words demand of products will be equal to supply of products and services in
the market.
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Impose of Tax
Yes, it can be stated that $x tax on each unit of alcohol produce will lead to effective level
of consumption as due to high tax rate of alcohol demand of products and services decreases.
Therefore due to decrease in demand of products supplier tend to manufacture less alcohol or
limited amount of products that meet requirement of demand of customers. Thus, such strategy
of government has lead to effective and limited level of consumption in Australia and better
health of people living in the society (Gabaix, 2016). Tax imposed on alcohol products increased
burden over final customers and thus people that are having large amount of money will only
spend their amount to intake alcohol. But increase in tax would not resulted in better outcome as
people are ready to pay extra for in taking large quantity of alcohol so it may also result in black-
marketing and situation of corruption.
Figure 1: Demand and Supply graph
Source: (DEMAND, SUPPLY, AND EFFICIENCY, 2019)
Recommendation
As per above analysis I would recommend government to impose high tax rates as it not
only provide increase price of products and services but also increase fund of government.
Increase in tax rates actually raised burden on final consumer to pay high price of products and
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services. Thus, it leads to decreases in demand of products such as alcohol but not decrease its
prices as high tax is continuously levied on products. Decreasing in demand of alcohol will
impact on supply of products and services thus customer will get limited amount of alcohol to
drink and have fun. It will also reduce number of case such as heart diseases, liver disorder and
accidents in Australia thus ensuring better health and safety of people. As increasing in price is
not only factors that impact demand and supply of alcohol because people are ready to pay even
more high price in order to intake such harmful drink (Price, 2017). Increase in pricing has
resulted in black-marketing and corruption within country so it can be stated that floor price
concept is just lead to reduction in supply of products. But in actual government is trying to
reduce demand of products such as Alcohol so it need to find out reason why people intake so
much alcohol. The main reasons for in taking alcohol by younger generation are distressed,
mental pressure and feeling of isolation. So both government and community should take steps
to reduce consumption, demand of products of such harmful products in life for better health in
future.
Elastic and inelastic
Demand of alcohol is inelastic, because most people who consumes alcohol products, in
which they never compromise wise price of product of alcohol. Currently there are huge market
of alcohol in the Australia, where many of people daily consume alcohol. In this situation, if
government of the Australia will set minimum price on alcohol, then demand of alcohol will be
little bit impacted. Reason is, people who daily takes alcohol, in which they currently also
purchasing that quantity of alcohol, which they want to consume (Midford, R., and et.al., 2018).
That’s why implementing of minimum price factor will not much affect existing demand of
alcohol in this country. Many of people in the Australia currently consider alcohol as essential
need. In this is main reason that, alcohol industry of Australia is growing day by day. However,
people who consumes daily alcohol will may happy and agree with this low price decision of the
local government, because when government will implement minimum price on alcohol, then
they also able will able to purchase alcohol in the large quantity on low prices. Alcoholic people
will be able to save their lots of money with the support of minimum price on alcohol factor. Of
course this decision of government will put impact on existing demand of alcohol, but not much
higher.
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Figure 2: Elastic and Inelastic Demand Curves
Source: (Elasticity, 2020)
There is price elasticity of demand is another major factor where price of alcohol
products will may affect demand of people (Boniface, Scannell and Marlow, 2017). If
government of the Australia will offer too much low or minimum price on consumption of
alcohol products, then existing demand of alcohol will definitely raise, but not much higher.
Reason is, there is existing demand of alcohol products is already high in this country, in which
when government will decrease price on alcohol, then this factor will not much affect demand.
This is the main reason that demand of alcohol is inelastic.
Impact of changing climate
There is changing climate is a term of environmental factors, in which climate change term
will diffidently impact or affect alcohol market of Australia. Currently day by day our climate is
changing, in which this climate change factor can affect demand and supply of alcohol in all
around the world. Basically, alcohol products have made through many natural resources. In this
situation, nowadays those natural resources are not easily available in the market because of
climate change aspect (Morrison, Gruenewald and Ponicki, 2016). On the other side, alcohol
manufacturing companies are also increasing prices on their various alcohol products per year,
because their raw-material suppliers not easily able to provide required material to these
manufacturing companies due to lake of natural resources. That’s why climate change factor can
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increase the price of alcohol within everyplace including Australia. In this situation, government
of Australia and also governments of the other countries should consider this climate change
factor before implementing minimum charges on alcohol, because when government of all
governments will decrease price of alcohol products, then they will indirectly put negative
impact the exiting climate. Currently each industry has affected through climate change factor
including alcohol industry.
On the other side, government of Australia need make balance in alcohol consumption. In
this situation, it needs to charge favourable taxation on alcohol products, because when local
government charges low taxation through alcohol manufacturing companies, then it can easily
maintain low price on alcohol products. These various steps are necessary for the government of
Australia for maintaining an effective level of alcohol consumption (Erku and et.al., 2019).
There are various another technique also available for local government that, government should
maintain no specific measures to manage price of alcohol in whole country, it need to stop black
marketing of alcohol in the Australia. At the end, government of this country will able to
maintain an efficient and effective level of alcohol consumption in whole country.
CONCLUSION
It can be concluded that currently there are various factors existing which can affect supply
and demand of alcohol in the Australia. Local government of this country should offer
favourable and minimum price on alcohol products for increasing alcohol consumption in the
whole country. There is a well enforced price can also highly affect the market of alcohol in
existing place. Currently government has imposed very high taxation on alcohol products, in
which it can decrease implement minimum price on alcohol by decreasing taxation rate on it.
There are climate change factors can increase price on alcohol, because currently many alcohol
manufacturing companies are facing many difficulties in getting raw-material on time. That’s
why these alcohol manufacturing companies will may increase price of their alcohol products.
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REFERENCES
Books and Journals
Athey, S., 2018. The impact of machine learning on economics. In The economics of artificial
intelligence: An agenda (pp. 507-547). University of Chicago Press.
Boniface, S., Scannell, J. W. and Marlow, S., 2017. Evidence for the effectiveness of minimum
pricing of alcohol: a systematic review and assessment using the Bradford Hill criteria
for causality. BMJ open. 7(5). p.e013497.
Catalini, C. and Gans, J. S., 2016. Some simple economics of the blockchain (No. w22952).
National Bureau of Economic Research.
Erku, D. A., and et.al., 2019. Policy debates regarding nicotine vaping products in Australia: a
qualitative analysis of submissions to a government inquiry from health and medical
organisations. International journal of environmental research and public
health. 16(22). p.4555.
Gabaix, X., 2016. Power laws in economics: An introduction. Journal of Econ
Iyer, S., 2016. The new economics of religion. Journal of Economic Literature, 54(2). pp.395-
441.
Kirshner, J. ed., 2018. Monetary orders: Ambiguous economics, ubiquitous politics. Cornell
University Press.
Midford, R., and et.al., 2018. Alcohol prevention for school students: Results from a 1-year
follow up of a cluster-randomised controlled trial of harm minimisation school drug
education. Drugs: Education, Prevention and Policy, 25(1), pp.88-96.
Morrison, C., Gruenewald, P. J. and Ponicki, W. R., 2016. Race, ethnicity, and exposure to
alcohol outlets. Journal of studies on alcohol and drugs. 77(1). pp.68-76.
Price, C., 2017. Landscape economics. Springer.
Online
Demand, supply, and efficiency. 2019. [Online]. Available through:<
https://opentextbc.ca/principlesofeconomics/chapter/3-5-demand-supply-and-
efficiency/>.
Elasticity. 2020. [Online]. Available through:
<https://www.sparknotes.com/economics/micro/elasticity/section1/>.
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