Tuesday, January 18, 2011

Minimum Pricing on Alcohol

This is a story bound to go down badly amongst the student community: The government proposes minimum pricing for alcohol.

You will have learnt about market equilibrium in econ101a and hence about the impact of minimum prices or minimum wages (and maximum variants too) - they distort the market away from equilibrium reducing consumer and producer surpluses and creating a deadweight loss. Economically there isn't really an argument for them - when considering partial analysis such as this (i.e. analysing one market - that for alcolhol - in isolation).

Perhaps that's why the experts that have advised the government on this are not economists. Economists particularly of a more libertarian perspective would argue that such actions impinge on the liberty of people - why does the government know best what I should do in my drinking habits?

Economic arguments could be advanced though. It's important to try as best as possible to consider a general equilibrium analysis. The argument would be that alcohol is not necessarily a "good" in all situations - it can be what we described in the lecture yesterday as a "regrettable", or a "bad", when it leads to social unrest. Clearly alcohol-related violence and health issues will lead to additional costs for the taxpayer via policing and the NHS.

So provided you like a taxpayer-funded nationalised health service, it adds an extra dimension to such issues...

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