Social Cost Case Study

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Market Failure

Social costs: Social costs is the negative effects on a 3rd party or not directly involved in individual (society), to an economic activity or business activity. For example the social costs of consuming alcohol would be that not only would the individual consuming the alcohol would be affected but the public and individuals who are not directly involved with the individual consuming alcohol can be affected by the violence and bad behaviour of the individual consuming alcohol.

External costs: external costs is when producing a good or consuming a good causes a cost upon 3rd party or not directly involved in individuals. If an external costs is caused by consuming a good (negative externalities), then the social cost will be
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Firstly the good, the governments in England and Wales plan on making the minimum price for alcohol 40p, this means that retailers would not be allowed to sell alcohol cheaper than that. This means that less people will be purchasing alcohol as it is more expensive, hence having less drunk people and ultimately reducing crime, bad behaviour, and problems to the police and hospitals. It is predicted that the minimum price for alcohol could mean that there will be 50,000 fewer crimes each year and 900 fewer alcohol related deaths per year. Another benefit of placing a minimum price would be that pubs and bars would gain business, this is because supermarkets and convenience stores would have to stop selling cheap alcohol as they can not sell their alcohol below the minimum price so people would have to go to pubs in order to purchase their alcohol. This could potentially mean that more people could get jobs working in pubs and that unemployment would decrease which will benefit the economy. This clearly shows that social costs will be reduced as bad behaviour, crime and violence from alcohol consumption will be reduced. However there could be some negative impacts of placing a minimum price on alcohol. If they place a minimum price on alcohol at first there would be a surplus of supply but there would also be a decrease in demand, this means if there is no more demand people who work for alcohol companies won't need to work and will lose their job causing unemployment. This is a disadvantage to the economy as the people who are unemployed are unable to produce any output, and there is a very large opportunity cost as instead of producing output and earning an income they are not doing anything, furthermore this could lead to violence and crime. Despite the reduced social costs of placing a minimum price on alcohol there are some possible disadvantages that could occur due

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