Increasing taxes of alcohol - Essay Example

According to the health minister, when in the year 2000 the previous government initiated a tax decrease on these products, it led to a drastic increase in the consumption of these products. Official data suggests that the consumption increased form 14 percent to around 60 percent with young girls. Moreover, an even more alarming situation for the government is that the consumption of ready to alcohol drinks is increasing within teenagers and data suggests that girls are even more responsive towards this trend in comparison with boys.

The government hopes to reverse this trend with this price increase since the segment is price sensitive plus the government also promises to spend the tax revenue in preventive health schemes. The above-mentioned case in many ways relates to different concepts of economics. The first one can be the very basic relation of price and demand. Economics at its initial level teaches that price charged for any product and quantity demanded of that product enjoy a negative or inverse relationship. If price charged for a product increases than the quantity demand decreases and vice versa1.

This case shows a similar kind of a situation. According to the health minister when in year 2000, the previous government decreased the taxes, it led to the decrease in the price charged for it to consumers and this decrease in price led to a drastic increase in the quantity demanded for ready to drink alcohol drinks. Official data suggests that it rose from 14 percent to 60 percent within the segment of young girls. The price demand relationship explains the idea and phenomenon behind this happening.

Another important concept of economics applied here is the price elasticity of demand. Sensitivity of quantity demanded to the changes in the price charged is the price elasticity of demand. In order words, it can also be said that it refers to the responsiveness of demand in relation to the changes in price.