Minimum Price Control On Alcohol Economics Essay Example

impact on the quantity demanded due to elastic demand.

Figure (2) demonstrates that when the price changes from P0 to P1, the demand changes from Q1 to Q0. As a result of governments enforcing minimum monetary values for alcohol, wine and beer retailers experienced a decrease in alcohol demand over time. With consistent increases in alcohol prices following this policy enforcement, consumers aim to purchase products at lower than expected prices to achieve consumer surplus as rational buyers desire.

Figure 3 showcases how consumer surplus changes when a minimum price is set for alcoholic beverages. Assuming that a buyer is willing to pay 60 pence per unit for a specific brand of beer, the actual price is currently at 40 pence per unit. Naturally, the buyer wants to purchase more. According to Figure 3, the consumer surplus for this beer is represented by the entire area of triangle (a-d-e).However, the government's implementation of crime control measures results in a minimum price requirement of 50 pence per unit for alcohol. This compels retailers to sell alcohol at this minimum price or higher. Consequently, there is a reduction in the consumer surplus area, which shifts from triangle (a-d-e) to triangle (a-b-c), as shown in Figure 3. The decrease in consumer surplus means that consumers lose out on benefits when retailers are forced to raise the selling price of alcohol. It is assumed that rational consumers may opt for alternatives such as soft drinks due to this change, aligning with the government's objective.

In addition to considering its impact on consumers, it is important to acknowledge the advantages for alcohol providers resulting from this policy. Figure 4 illustrates how the supply

curve changes: an increase in price from point A to point B leads suppliers to become more willing to offer their products. Essentially, when the government establishes a minimum price for alcohol and drives up unit prices for alcoholic products, suppliers are incentivized to offer their goods.

To gain a comprehensive understanding of market dynamics, it is necessary to analyze both consumers and retailers collectively. The line chart format depicted in Figure 5 portrays the supply and demand curves. Point A represents market equilibrium where consumer demand aligns with provider willingness. However, raising prices in the alcohol market creates disequilibrium and surplus pointsIn Figure 6, the government has set a minimum price for alcohol (p1) that is higher than the market's equilibrium (point A). This causes an excess supply from Qs to Qd, known as monetary value one. By artificially raising the price above the equilibrium, more suppliers are encouraged to offer alcoholic beverages while consumers decrease their purchases or switch to alternatives. The ultimate goal is to achieve this outcome.

After examining the effects on consumers and suppliers, we now explore key factors that ensure the effectiveness of implementing a minimum price for alcohol. Referring back to Figure 6 and considering a price floor in the market intervention diagram, if the government sets a price below the market equilibrium (price 2), it would have no practical effect. Therefore, establishing a price higher than the market equilibrium becomes necessary for this policy's effectiveness – this is the first essential factor required to maintain its efficacy.

The main objective of implementing minimum prices on alcohol is to reduce excessive drinking and address issues such as alcohol-related diseases and crimes.

The success of these minimum prices depends on various factors that influence consumer demand, including alcohol prices, substitute products' prices, complementary products' prices, consumer incomes, preferences, and expectations concerning prices.The effectiveness of implementing a minimum price for alcohol, which exceeds the equilibrium price determined by the free market, is crucial in mitigating alcohol-related crimes and diseases. This government intervention considers two key effects: the income effect and substitution effect. The income effect refers to how purchasing power decreases when alcohol prices rise while nominal income remains constant, making alcohol less affordable. Conversely, when income increases, consumers can afford more alcohol. On the other hand, the substitution effect occurs when consumers choose soft drinks over alcohol as its cost rises.

The success of this policy relies on consumer income and the availability of substitutes. If soft drink prices decrease or there is simultaneous advertising, combined consumption may significantly increase. Furthermore, changes in alcohol price lead to shifts in consumption due to its inelastic demand. Consequently, suppliers increase their offerings of alcohol due to higher prices resulting in an oversupply.

However, it is important to note that these interventions have consequences. While substitution results in a decrease in alcohol consumption and aims at reducing demand to achieve the policy's goal, consumer surplus declines indicating a loss of benefits. Thus emphasizing the importance of government intervention for ensuring effective implementation of this policy that accounts for both income and substitution effects alongside considering product pricing dynamics overall.In order to successfully maintain the minimum price policy, it is important to consider several key factors. These factors include consumer income, substitution price, and alcohol price. All of these elements play a

role in reducing demand.