Alcoholic Drinks Market Analysis: ECO2101 Microeconomics Project CA1

This project provides an in-depth analysis of the alcoholic drinks market, examining factors influencing consumption, including opportunity costs, demand and supply dynamics, and the impact of government policies. It uses real-world news articles to illustrate key economic principles, such as the Production Possibility Frontier (PPF) and shifts in demand and supply curves. The analysis covers topics ranging from the dangers of bootleg alcohol to the introduction of alcoholic beverages by major companies like Coca-Cola, and the effects of events like March Madness on alcohol consumption. It also discusses the implementation of minimum pricing policies and the growing preference for low-alcohol wines, highlighting the complexities of regulating and understanding the alcohol market. The project concludes that despite efforts to control alcohol consumption, its inelasticity to price changes and the availability of illicit alternatives pose significant challenges.

Running Head: Alcoholic Drinks Analysis
Singapore Institute of Management
Global Education
Diploma in Management Studies
DMSQF
April to June 2018 Semester
ECO2101 Microeconomics
CA1 Individual Project
26 April 2018
Submitted by:
Name :
NRIC/FIN :
Email :
Mobile :

Alcoholic Drinks Analysis 2
Table of Contents
1. Introduction................................................................................................................................3
2. Analysis.......................................................................................................................................4
2.1 Analysis 1 - Over 60 dead in Indonesia from drinking bootleg alcohol.................................4
2.2 Analysis 2 - Coca-Cola to launch its first alcoholic drink........................................................5
2.3 Analysis 3 - Booze and basketball: Why binge drinking increases during March Madness...6
2.4. Analysis 4 - Minimum price on alcohol in the NT will likely reduce harm............................7
2.5 Analysis 5 - Alcohol guidelines in many countries may not be safe: Study...........................8
Conclusion......................................................................................................................................9
Bibliography..................................................................................................................................10

Alcoholic Drinks Analysis 3
The market for Alcoholic Drinks
1. Introduction
I choose to do an analysis on the existence of alcoholic drinks since it’s a product mostly
consumed in the market. Many people have abused the consumption of alcohol until others
have become addicts such that they can’t go a day without an alcoholic drink. Its consumption
has many negative impacts on the standards of living and is accompanied by health issues.
This paper will determine the opportunity costs of alcohol consumption; how choices
are made since resources are scarce. This will be by the use of a production possibility frontier
that will compare alcohol consumption and the consumption of another good. The paper shall
also determine the demand and supply factors that contribute to the consumption of alcohol.
We shall also see how prices and non-price factors cause movement along or shifting of the
demand and supply curves. Lastly the paper shall cover the policies taken by the government to
discourage its increased consumption.

Alcoholic Drinks Analysis 4
2. Analysis
2.1 Analysis 1 - Over 60 dead in Indonesia from drinking bootleg alcohol
Source: https://www.straitstimes.com/asia/se-asia/over-60-dead-in-indonesia-from-drinking-
bootleg-alcohol.
Summary:
This news was published in the Straitstimes on April 8, 2018. The story behind this news
is of people dying of consuming illegal alcohol; the incidence took place in West Java province.
During this day, a container filled with illegal alcohol was removed from a house located in
Cicalengka district. This illicit homemade alcohol had led to the death of 60 consumers whereas
dozens of others were in hospitals. The raid showed that there are many suppliers of the illicit
alcohol in Indonesia town. While some of the suspects were caught, others are still out there
continuing with the supply.
Analysis
Given that one need resources in order to consume alcohol, it falls in the consumers’
budget line which is affected by the scarcity of resources (Tejvan, 2016). The consumption of
alcohol is thus at an opportunity cost of consuming other goods. Those with high levels of
alcohol consumption leave little for the consumption of other home goods.
Fig: Production Possibility Frontier (PPF) of alcohol consumption
Alcohol
A
A1
A*
F1 F* F Food
Given a fixed income level and all resources being employed such that the consumer is
on the optimal point F*A*, the opportunity cost of consuming more alcohol for instance A1 is F*-
F1 food. According to Riley (2015), PPF represent a tradeoff between consumptions. Given the
incidence in this news, since alcohol prices are higher and the income is fixed, a further rise in
prices cause the consumers to shift to cheaper alternatives which is the illicit homemade
alcohol.

Alcoholic Drinks Analysis 5
2.2 Analysis 2 - Coca-Cola to launch its first alcoholic drink
Source: https://www.theguardian.com/business/2018/mar/07/coca-cola-launch-first-alcoholic-
drink-japan
Summary:
In the past 132 years Coca cola has been in operation, it has never produced an
alcoholic drink; this is the first time it is planning to do so. The new alcoholic drink is planned to
be launched in Japan and is referred to as Chu-Hi Alcopop. According to Kollewe (2018), this
canned sparkling flavored drinks is said to contain Soshu which is a local spirit. The news article
also noted that the company will use this as just a starting point and may explore further
opportunities.
Analysis
The news article notes that for the past five years there have been a surge in the sale of
drinks with an alcohol concentration of between 3 - 8%; this represents an expansion in the
supply for alcoholic drinks. The popularity of Chu-Hi alcopop will lead to the Coca cola Company
expanding their production line to other types of alcoholic drinks. It’s also noted in the article
that sugar tax is coming into effect next month, this is greatly going to impact the demand and
supply of Coca cola products since price is one of the major determinants.
Fig: Demand and Supply of Alcoholic drinks
Price Oversupply
Supply
P1
P*
Demand
Q1 Q* Q2 Quantity
The demand for alcoholic drinks shown above is steeper due to its inelasticity to price
changes. However, a higher tax will cause a larger rise in price from equilibrium price P* to P1
enough to induce a reduction in demand from equilibrium Q* to Q1. There will be an oversupply
since suppliers need to supply more is affected by the reduced demand.

Alcoholic Drinks Analysis 6
2.3 Analysis 3 - Booze and basketball: Why binge drinking increases during
March Madness
Source: https://theconversation.com/booze-and-basketball-why-binge-drinking-increases-
during-march-madness-90038
Summary
There is high consumption of alcoholics drinks among the senior students at universities
and colleges especially during March Madness tip-off. During basketball tournaments, the
participant students have been noted to consume more beers than in the other days (White,
Cowan & Wooten, 2018). This is also the case for football game matches. This is whether a
team wins or losses; the winners may opt to celebrate the victory by binging more beers. On
the other hand, the losers may opt to take some beers to relieve them the stress of losing.
Analysis
This new article is exhibiting the contribution of tournaments to the increased alcohol
consumption among students. Since this increase in demand is induced by a non-price factor, it
causes the equilibrium demand curve to shift. According to Dorman (2014), any non-price
factor that induces demand causes the demand curve to shift.
Fig: Alcohol Market equilibrium
Alcohol
Price Supply
P2 E2
P1
E1
D 2
D1
Q1 Q2 Quantity
At the initial equilibrium point of P1Q1, demand is represented by demand curve D1.
The non-price factor causes a shift of demand from D1 to D2. This shift causes an increase in
both the quantity and the price level. The new equilibrium E2 is thus at a higher level than the
initial equilibrium E1.

Alcoholic Drinks Analysis 7
2.4. Analysis 4 - Minimum price on alcohol in the NT will likely reduce harm
Source: https://theconversation.com/minimum-price-on-alcohol-in-the-nt-will-likely-reduce-
harm-92577.
Summary
This new article published on March, 2018 gives an insight of the intention the
government intend to make in order to lower the harmful effects attributed to alcohol
consumption. The new alcoholic policy announcement was made in the Northern Territory and
it has information on the implementation of a minimum pricing of alcohol. This is intended to
raise the alcohol price by $1.30 for a standard drink (Livingston & Callinan, 2018). This alcoholic
policy has never been employed in Australia before and this make NT the first state to bring
such jurisdiction.
Analysis
Fig: Minimum pricing of alcoholic drinks
Alcohol
Price
Supply
Pm Minimum price
P* E
Pi
Demand
Qm Q* Q1 Quantity
The equilibrium before the policy of minimum price imposition is at point E where price
is P* and quantity is Q*. The imposition of a minimum price is done above the equilibrium price
at price Pm. at this new price, demand falls from Q* to Qm. an oversupply equal to Q1-Qm is
created. The intended goal or discouraging consumption is achieved. This creates a need for
illicit alcohol which is sold at price Pi; this explains why it’s always present in many economies.

Alcoholic Drinks Analysis 8
2.5 Analysis 5 - Alcohol guidelines in many countries may not be safe: Study
Source: https://www.theguardian.com/lifeandstyle/2018/jan/26/fiona-beckett-low-alcohol-
wines
Summary
There are many blend of alcoholic drinks in the world and consumers seek utility
depending on the reason that cause them to indulge in the drinking; the occupation also
determines the type of consumption. While some may refer consuming wines, spirits and other
boozes with high alcoholic concentration, others prefer to use low-alcohol wines. The paper
argues that drinking highly concentrated alcoholic drinks is harmful to one’s body and should
be avoided (Straitstimes.com, 2018).
Analysis
Fig: Consumer preference effect on demand for alcohol
Alcohol
Price
Supply
P2 E2
P1
E1
D 2
D1
Q1 Q2 Quantity
According to Beckett (2018) most consumers especially women prefer low-alcoholic
wines. The demand for these wines rises with the rise in consumer preference. Since consumer
reference is a non-price factor, it will cause the demand curve D1 to shift to demand curve D2.
Equilibrium point will shift from E1 to E2. The corresponding quantity to the new equilibrium is
Q2 and price is P2. There are many alternatives for alcoholic drinks and thus the supply is
adequate to meet the rising demand. There is a notion that technology for production of low-
alcohol wine has improved and thus supply is going to rise.

Alcoholic Drinks Analysis 9
Conclusion
Alcoholic drinks give consumers utility that they can’t get from other drinks. Some of the
consumers drinks constantly until they become binge drinkers. Alcohol will continues to be
used despite the price increments. For binge drinkers, their standard of living will be greatly
undermined by its consumption.
Due to an improvement in technology, there are better ways of producing alcoholic
wines, thus, the supply of these alcoholic drinks is expected to rise in the future. However,
unlike other goods, the increased supply will not cause the price to fall. Price will continue rising
since increased alcohol consumption will bring negative health impacts that will create a need
to raise prices to discourage its consumption.
I have learnt than the control of alcoholic consumption is not possible. The policies
imposed by the government has less impacts since alcohol consumption is inelastic to price
changes. Even if the policy worked, many consumers will shift their consumption to illicit
homemade alcohol which has caused death to many and hospitalization of many others.

Alcoholic Drinks Analysis 10
Bibliography
Beckett, F. (2018). How low can you go? Our pick of the best low-alcohol wines. The Guardian.
Retrieved 25 April 2018, from
https://www.theguardian.com/lifeandstyle/2018/jan/26/fiona-beckett-low-alcohol-
wines.
Dorman, P. (2014). Macroeconomics. Berlin, Heidelberg: Springer Berlin Heidelberg.
Kollewe, J. (2018). Coca-Cola to launch its first alcoholic drink. The Guardian. Retrieved 25 April
2018, from https://www.theguardian.com/business/2018/mar/07/coca-cola-launch-
first-alcoholic-drink-japan.
Livingston, M., & Callinan, S. (2018). Minimum price on alcohol in the NT will likely reduce harm.
The Conversation. Retrieved 25 April 2018, from
https://theconversation.com/minimum-price-on-alcohol-in-the-nt-will-likely-reduce-
harm-92577.
Riley, G. (2015). Production Possibility Frontier. tutor2u. Retrieved 25 April 2018, from
https://www.tutor2u.net/economics/reference/production-possibility-frontier.
Straitstimes.com. (2018). Over 60 dead in Indonesia from drinking bootleg alcohol. The Straits
Times. Retrieved 25 April 2018, from https://www.straitstimes.com/asia/se-asia/over-
60-dead-in-indonesia-from-drinking-bootleg-alcohol.
Straitstimes.com. (2018). Alcohol guidelines in many countries may not be safe: Study. The
Straits Times. Retrieved 25 April 2018, from
https://www.straitstimes.com/world/europe/alcohol-guidelines-in-many-countries-
may-not-be-safe-study.
Tejvan. (2016). Production Possibility Frontier. Economicshelp.org. Retrieved 25 April 2018, from
https://www.economicshelp.org/microessays/ppf/.
White, D., Cowan, B., & Wooten, J. (2018). Booze and basketball: Why binge drinking increases
during March Madness. The Conversation. Retrieved 25 April 2018, from
https://theconversation.com/booze-and-basketball-why-binge-drinking-increases-
during-march-madness-90038.

Alcoholic Drinks Analysis 11