Market Failure and Alcohol

The minimum price would cause people to pay the social cost for alcohol and discourage young drinkers from overcompensation. However it could reduce living standards for those on low Incomes and supermarkets would use It as an easy way to Increase profits. Taxation can be used to raise the price of alcohol and in effect create the same result of a price floor. However taxes can be regressive which means the tax takes a larger percentage of a lower-income than it would of a higher Income. Alcohol’s demand is relatively inelastic. This means even tit the Introduction of the minimum price demand will not fall a great deal.

Supermarkets will have to raise their price due to the new laws and will in turn make more revenue. They will see the same demand and be selling for a greater price. The minimum price will affect cheaper drinks more than more expensive ones. If the minimum price Is per unit of alcohol cheaper drinks will see a greater percentage increase in their price. This means that some businesses will lose out far more than others. The minimum price is specially calibrated to target drinks that are expatriation’s consumed be consumers on low incomes. This means it is regressive.

Consumers on low Incomes will be priced out of many drinks. This will create a large Incentive for a black market. Black markets are very hard and are very expensive to stop. Creating a better education campaign for alcohol is an alternative to the introduction of the minimum price. The government can look to introduce education requirements for the consumption of alcohol. In the late sass an education programmer for the campaign against smoking was introduced. At that time 39 per cent of adults of the age of 16 smoked. In 2014 only 20 per cent of adults were still smoking.

These statistics do not suggest that the reduction was completely down to the relentless campaign against smoking. However smoking, like alcohol, is relatively Inelastic and It can be assumed that the large reduction was partly down to the campaign against it. The government can look to increase regulation on alcohol. As the world is becoming more and more technological it is easier to influence consumers through advertising. Therefore, the government can look to ban advertising for alcohol. It could also look to remove alcohol from supermarket shelves n the same way it did with cigarettes.

Cigarettes have to be kept in a cupboard out of view from the public. By doing this the temptation of alcohol is reduced as young consumers wont walk past and be tempted. Introducing more taxes on alcohol is an alternative to the minimum price. Taxes would move the money to society rather than Increase profits for supermarkets. This can then be used to account for the social cost of alcohol. For example the cost to the health service. Alcohol adds pressure to 1 OFF alcohol can help to pay for this extra cost. The government must also be careful of arrest failure with what intervention they make.

This could be far worse than the original failures. The law of unintended consequences can come into effect. This is when a government policy will always lead to at least one reaction from either consumers or producers that are unanticipated or unintended. Economic agents may not act in the way governments may predict. This failure can lead to a huge finical cost and not correct the original market failure. The campaign against smoking is the best example for the government of how to tackle this sort of market failure.

The aiming demonstrates how there is no one policy that will tackle the market failure. The combination of an education campaign, direct and indirect taxes which will deter consumers from alcohol and correct the current market failures. It could be said that the government shouldn’t intervene and that it should trust the market to resolve itself. Overcompensation of alcohol will mean that there is a high demand for it. The price mechanism should react to the excessive demand which means the price will rise. Consumers will then not be able to afford to consume as much as before.