UK Government and Measures to Reduce the Alcohol Consume - Essay Example

1. The article implies that a minimum price for alcohol is a potential solution to tackling the perceived problem of excessive alcohol consumption. Explain why this might be the case, and why it is argued in this article that, in this particular situation it is not an effective solution. Use an economic framework or model that you think is useful in answering this question. Excessive alcohol consumption has been viewed by many people in the UK as a big social problem. In passing the minimum price control for alcohol, the government was intending to reduce binge drinking and any type of crime that is alcohol –related. Another reason given for the price controls was to control cheap alcohol sales which might cause risk to the health of individuals. There is also an economic reason for setting the minimum price for alcohol by the UK government. This is to “set a minimum level below which alcoholic products cannot be sold and will stop the worst instances of deep discounting” (Ball, 2011). This means that the government through its price control measures intends to sop the harmful and cheap sale of alcoholic drinks. The policy makes it illegal to sell any alcoholic drink below the stipulated prices. However the article argues that controlling the minimum price of the drink will not really solve anything. The article states that the low prices set by the government would only have affected one of the thousands of price-cut alcohol deals (Ball, 2011). This means that the minimum prices are too low to achieve any impact on the sale of cheap and harmful alcoholic products. The article observes that none of the low-priced alcohol brands would have increased their prices within the new legislations. Many of these products are on offer on major supermarkets such as Tesco which has such offers as 24 cans of Fosters that goes for a mere 10 pounds or even 3 fifteen packs of Strongbow cider being sold at 20 pounds. The minimum pricing policy is accompanied by VAT additions which the government hopes will help curb the norm of excessive drinking in UK (Ball, 2011). Many see that the government efforts at setting minimum prices for alcoholic products will only solve half of the problem because there are many alcohol companies which have the capacity to produce alcoholic beverages at the set price and still rake in millions in profits. All that the legislation is doing to the market is removing any form of competition for the established manufacturers and distributors. Setting minimum prices will not effectively stop people from buying and sometimes, overindulging in alcohol.  2. Explain why, in a mixed economy, the concepts of scarcity and opportunity cost are important for governments. Illustrate your answer with examples. Also explain reasons why governments tax goods like alcohol, cigarettes and petrol. Use economic concepts in your answer. In the mixed economy, resources are owned by both the government on behalf of the public, and the private sector.  It is the public sector which intervenes According to economics, the concept of scarcity implies that resources are scarce or limited. The resources that are available are not enough to satisfy the needs of everyone concerned. For instance, if someone’s income is limited, it means that he cannot buy everything that he wants. Opportunity cost on the other hand is a measure of the cost of a certain choice, or what is refereed in economics to as the next best alternative forgone. For a person whose income is limited, he has to choose between different alternatives so that he can make good use of his limited income (Ward and Forker, 1993). In a mixed economy, opportunity cost is important for governments as it enables them to make strategic decision to control the market in a way that is likely to be more beneficial than the other. The concept of scarcity enables the government to plan and deliver its resources in the way it sees fit in order to meet as many of the market demands as possible. In the mixed economy, the concepts of scarcity and opportunity costs are important to government as they provide a basis for investment (Reithmuller, 1984). These investments are important as they provide lots of revenue for governments in the form of taxation. Scarcity is also important for governments as it gives them a chance to control the market. For instance, if the scarcity is land, the government retains the right to decide the reasons for what the land can be used for. The government also retains the right to impose any taxes it deems fit on the scarce resource. Opportunity costs give the governments chance to think of different options of earning the highest possible revenues with the scarce resources available. The government taxes certain goods such as alcohol, cigarettes and tobacco for a wide range of reasons, but the most important is to gain revenue. Some of these goods are considered to be demerit goods, meaning that they have the potential of causing harm to the society. Therefore, it is the duty of the government to regulate their supply by imposing tax so that they do not cause the harm that they are believed to be capable of. The demand for alcohol, cigarettes and tobacco is normally very high. This means that market players normally make maximum profits from the sale of these products. The supply is also normally high, but not as high as to completely satisfy the needs of consumers. The governments impose tax on these products due to their value as a result of high demand. 2. Explain, and demonstrate with separate supply and demand diagrams, why (a) education and (b) taxation can be used to minimize the incidence of alcohol consumption. Fully explain your answer using economic analysis. There are many ways of ensuring that the incidences of alcohol consumption are minimized. One is through education and another way is through government taxation. Education is a powerful tool that can be used to disseminate information about the effects of excessive alcohol intake. The education on alcohol consumption should start at the pre-teen level and continue up to the highest level of formal education. Informal education on the effects of excessive alcohol consumption is also important. Everyone needs to know what they getting themselves into when they engage in unhealthy drinking habits. Education decreases demand for alcohol products across all sectors of the market. When the demand is low and the supply is high, manufacturers, distributors and retailers are likely to bring their prices down. This means that governments do not have to set minimum alcohol prices that are too low. Through education, individuals get to know that taking too much alcohol may cause untold harm and therefore, they are likely to reduce stop their intake (Reithmuller, 1984). Taxation is also another way of curbing the rising number of excessive alcohol intake incidences. Taxation is mostly common because of its revenue generating potential. Taxation on alcoholic drinks includes excise duty and VAT that is normally dependent on the quantity of the drink. Imposing taxes on the production and sale of alcoholic drinks raises the minimum cost of the beverage, thus making it impossible to overspend on it. This means that when there are stringent taxation policies on alcoholic drinks, they are likely to be quite costly, thus discouraging individuals from excessive intake which might have a negative impact on their health and the economy as a whole. Taxation decreases demand on the part of consumers since it makes alcoholic beverages more costly than many people can afford. However, it may not affect supply, which may remain high despite the taxation laws. When the demand reduces but the supply remains the same, it is very likely that product prices will also reduce (Ward and Forker, 1993). 4. Give an example of another market (other than those above) within which the government has intervened.  Explain why such intervention occurred and what the outcome might be, making use of economic analysis. Markets all over the world have always remained under the control of the prevailing political systems and policies, even in this day and age of free market trends (Reithmuller, 1984). Government interventions are important as they facilitate achievement of national policy objectives and market competition. An example of a market where government intervention has been extensive is the food sector, and in particular, wheat sector. The government controls the exportation of wheat and wheat products so as to cushion the home market against price distortions. The government also imposes certain taxes on imported wheat and wheat products, but the tax are not imposed on locally produced wheat products (Ward and Forker, 1993). The government has also set pricing measures for wheat so as to curb the effects of inflation and fluctuating prices on the consumer. Wheat is one of those products that does not have elasticity in demand. This means that demand is not dictated to by the prices of the commodity. If the prices are high, the demand is high and when the prices are low, the demand remains high. The intervention of the government ensures that market players do not take advantage of the situation to offer their products at exorbitant prices. Cushioning consumers against inflated prices on wheat products is not the only reason for price controls and taxation by the government. In other words, through the interventions, the government seeks to regulate the playing field in the market so that every player enjoys an equal share of the market. The intervention of the government also ensures that it gains maximum returns from the activities of the wheat market. However, the outcome might not be as positive as it is supposed to be. Government interventions might tip the balance against the consumers’ and government’s favor. For instance, if there is an economic failure or if the inflation is high, the government has the freedom to increase the prices, thus affecting consumers and their ability to buy. Taxation and price controls can also hurt supply of wheat which can result to a minimal availability of the product. References Riethmuller P. (1984) Government intervention in commodity markets: the case of the Japanese rice and wheat markets. University of Minnesota. Ward R. & Forker O. (1993) Commodity advertising: the economics and measurement of generic. Lexington Books. Read More