Alcohol abuse for Consumerss money

Discuss about the Alcohol abuse for Consumerss money.

Introduction

Alcohol abuse is a problem for a host of nations and has significant costs attached to it. It leads to wastage of consumer’s money and has harmful effects for the social, economic and biological life of the person concerned. Besides, it’s a menace for the national government as well since alcohol abuse is linked with crime and leads to significant healthcare costs. Hence, the government aims to take prudent measures to keep this problem under control. In this context, one of the popular measures is the usage of alcohol tax whose effectiveness needs to be critically analysed through this paper.

Analysis

It is widely advocated both by international organisations (such as WHO) along with academic scholars and researchers on the topic that alcohol taxes are an effective means to curb the alcohol consumption (Elder et al., 2010). In wake of the above claim, the economics behind the working of this indirect tax needs to be understood through economic principles. The levying of alcohol tax leads to the following alteration in the demand supply diagram.

Since the alcohol tax is levied on the suppliers and manufacturers, hence assuming that all the tax burden is passed on to the consumers, then there would be a leftward parallel shift in the given supply curve as indicated above. Since the demand curve remains constant, this shift leads to an increase in the price and apparent decrease in the consumption and thereby successfully dealing with alcohol abuse (Pindyck and Rubinfeld, 2001).

However, the interpretation carried out above may not be true as it cannot be assumed that all the burden of alcohol tax is passed on the consumers and thereby indicated in the final price. The exact quantum of taxation burden borne by the consumer would be linked with the demand elasticity of the given alcohol variety. Based on the relative elasticity of demand for the alcohol variety, the following situations can emerge (Nicholson and Snyder, 2011).

From the graph shown above, it is apparent in case of inelastic demand curve (i.e. Figure 1), that the quantity demanded is not much impacted by the underlying price. As a result, the suppliers decide to pass on the majority of the tax burden to the end consumer which leads to a significant increase in the price from P to P_t. However, despite this significant increase in consumer price, the decrease in quantity from Q to Q_t is quite minimal (Krugman & Wells, 2013).

In sharp contrast, in case of elastic demand curve (i.e. Figure 2), the quantity demanded is highly sensitive to price. As a result, the suppliers decide to pass on only a small portion of the incremental tax burden to the end consumer which leads to a miniscule increase in the price from P to P_t. However, despite this small increase in consumer price, the decrease in quantity from Q to Q_t is quite significant (Mankiw, 2014).

It is apparent from the above analysis that taxation as a means to curb alcohol consumption would be successful only in case of elastic demand curve but not otherwise. Considering the addictive nature of alcohol, a sizable amount of consumers would constitute the inelastic market. Hence, levying of high tax burden in this segment may be counter-productive as users may resort to illegal means so as to ensure money for alcohol. Therefore, it makes sense not to use alcohol tax in isolation. Instead, it should be couple with awareness campaigns especially amongst the youth and vulnerable population so as to prevent new users from becoming addicted. Further, for the addicted users, rehabilitation programs must be provided along with requisite counselling. Besides, other regulatory measures such as restrictions on age, promotion, alcohol selling, and drunk driving must continue as supporting measures (Elder et al., 2010).

Conclusion

It is apparent that the effect of alcohol tax varies as per the market dynamics and hence it might not be the most effective measure. Thus, while it should be implemented, it needs other complementary measures for prevention and rehabilitation so that alcohol abuse problem can be effectively resolved.

2.Introduction

Due to difference in factor endowments, a particular nation may be more efficient at production of particular good. It would lead to economic efficiency and trade gains if each nation would limit itself at producing the good they can do most efficiently. However, in order to measure this production efficiency, there are two different advantages i.e. absolute advantage and comparative advantage which use different measures to ascertain this (McConnell, Brue and Flynn, 2014). The given paper aims to bring out the difference between the above two concepts in the context of trade.

Analysis

The theory of absolute advantage was advocated by Adam Smith. He advised that a foreign nation would possess absolute advantage with regards to the production of a particular good if it can supply the host nation the same good at a lower cost. Hence, the host nation should import this good from the foreign nation and instead use its resources in the production of a good it has absolute advantage in. However, this theory does not address the situation where a given nation does not have absolute advantage in the production of any good (Dombusch, Fischer and Startz, 2013).

In order to resolve the above dilemma, Ricardo advocated the comparative advantage concept as per which the advantage to a particular nation is determined on the basis of lower opportunity cost and not the lower manufacturing cost. Hence, the nation which exhibits a lesser opportunity cost for unit production of a product is deemed to have comparative advantage over the other nation. This concept can be better understood using the example used by Ricardo which utilised the data given below.

On application of absolute advantage, it is apparent that Portugal has absolute advantage over England for both goods and hence must export the same.

England’s opportunity cost (cloth) = 5/6 wine units

Portugal’s opportunity cost (cloth) = 9/8 wine units

It is apparent that the for cloth, England has a lower opportunity cost and thereby it should produce only cloth while wine production must be done only in Portugal. This results in mutual gains for both the nations (McConnell, Brue and Flynn, 2014).

Conclusion

It is apparent from above that cheaper manufacturing cost leads to absolute advantage while lesser opportunity costs leads to comparative advantage. Amongst the two, the comparative advantage model is preferable since it leads to higher efficiency and gains for the nations involved.

References

Dombusch, R., Fischer, S. and Startz, R. (2012), Macroeconomics, New York: McGraw Hill PublicationsElder, R. W., Lawrence, B., Ferguson, A., Naimi, T. S., Brewer, R. D., Chattopadhyay, S. K.,

 

Toomey, T. L., & Fielding, J. E. (2010), The effectiveness of tax policy interventions for reducing excessive alcohol consumption and related harms, American Journal of Preventive Medicine, 38, 217-229.

Krugman, P. and Wells, G. (2013), Microeconomics, London: Worth Publishers

Mankiw, G. (2014), Microeconomics, London: Worth Publishers

McConnell, C., Brue, S. and Flynn, S. (2014), Macroeconomics: Principles, Problems, & Policies, New York: McGraw Hill/Irwin Publications

Nicholson, W. and Snyder, C. (2011), Fundamentals of Microeconomics, New York: Cengage Learning

Pindyck, R. and  Rubinfeld, D. (2001) Microeconomics. London: Prentice-Hall Publications