The Demand for Alcoholic Beverages

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Alcoholic beverages have been around for more than 8000 years and despite the World Health Organisation claiming that the global consumption of alcohol has remained roughly the same since 1990, the main groups who do drink are now drinking a lot more heavily. This is shown in the article, Alcohol pricing: Mulled Whines et al. (2013) where it explains how binge drinking was once a rarity in Spain as alcoholic beverages were only consumed mildly with food. However, nowadays during the night at the Plaza de Espana in central Madrid it is now flocked with many groups of people who have been drinking on a binge which results to vomiting and mess on the streets. Pitts (2010) explains that the social benefits associated with drinking alcoholic beverages include that it ‘produces a sense of relaxation, wellbeing and even euphoria in individuals, which enhances their enjoyment of whatever activity they are participating in’, also it can help ease stress and make you more confident in your actions. However, alcohol also has social costs as The Economist et al. (2013) The demand for alcoholic beverages as a whole is inelastic which can be proved from the price elasticity of demand formula. The price elasticity of demand is explained by Hubbard et al. (2012) as ‘the responsiveness of the quantity demanded to a change in price’ and can be calculated from the following formula: Price elasticity of demand = Percentage change in quantity demanded/percentage change in price. From the statistics given by The Economist et al. (2013) of how a 10% price rise in prices would decrease consumption by around 5%, the equation would be: Price elasticity of demand = -5%/10% which means the price elasticity of demand would equal -0.5. Due to the fact demand ... ... middle of paper ... ... name. However, there is a point that binge drinking would have social costs to society including sickness and violence due to the alcohol intake. As we have private costs and benefits to alcohol (For example being able to enjoy yourselves more) as well, we are seen to be consuming too much of it which creates a negative externality as shown in the diagram below. As the supply line shifts to S + external costs, it is now seen that the social equilibrium is at price Pf. If the policy makers make the price wall at Pf as well then this shows it is at a social optimal price thus, reducing the surplus or dead weight loss and in fact even solves the problem of the social deadweight loss in the beginning. This lack of deadweight loss will make policy makers opt towards this price floor as opposed to a tax where there is deadweight loss as discussed earlier in figure 1.0.

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