Suppose the government raises the legal drinking age in the UK from 18 to 21. Conduct an economic analysis of this policy to examine its impact on affected markets. With reference to the above statement, if the UK government were to increase the legal drinking age from 18 to 21 there are two markets that would mainly be affected- the producers, which is the alcohol industry as a whole and the consumers who are the UK citizens between the age of 18 and 21. A market is a group of buyers and sellers of a particular good or service.(Mankiw) Alcohol is a demerit good. These are goods that are over-produced and over-consumed. They are goods that the government considers harmful for both the people who consume them and for society as a whole, …show more content…
Alcohol is inelastic in nature as it is habit forming and to a level considered addictive. Price elasticity of demand = Percentage change in Quantity Demanded Percentage change in Price If PED is equal to zero, then a change in the price of a product will have no effect on the quantity demanded at all. If it is less than one and greater than zero it is inelastic and if it is greater than one and less than infinity it is elastic. In our case, a low PED means the imposition of such a rule may not lead to a significant decrease in quantity of alcohol demanded. Diagram IV Diagram IV shows a steeply sloping inelastic demand curve. There is an increase in price from P1 to P2, which leads to a relatively small decrease in quantity demanded from Q1 to Q2. Under Elasticity of Demand there are two more types that I have not spoken about, one being the Income elasticity of Demand (measures how much the quantity demanded changes as consumer income changes) and the other being Cross Price Elasticity of Demand (measures how the quantity demanded of one good changes as the price of another good changes). I could say that cross price elasticity of demand holds relevance because when consumers are not given a particular good
This graph is specific to an oligopoly and shows the change in quantity demanded in relation to the change in price for both elastic and inelastic goods. Total Revenues will be increased, if the firm decreases their price but increase their quantity. Due to the fact that the costs remain the same, the revenue line on the graph can be seen to be steeper than the costs meaning that the profit is higher. The graph therefore also indicates the point where the firm is able to make the most amount of profit, in relation to the price they set and the quantity they produce.
Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.
It has been a rising issue within the past century to have the drinking age set at 21, but many people are more in favor of having the age set at 18. For instance, “’Raising the drinking age to 21 was passed with the very best of intentions, but it’s had the very worst of outcomes,’ stated by David J. Hanson, an alcohol policy expert” (Johnson). Many people believe that having the drinking age set at 21 was a smart idea, but it has caused many more deaths and injuries over the years. Most of these fatalities are cause from people who are underage and choose to consume alcohol. Again, “Libertarian groups and some conservative economic foundations, seeing the age limits as having been extorted by Washington, have long championed lowering the drinking age” (Johnson). These groups see that keeping the drinking age set at 21 is dangerous as it causes more problems to the Untied States. If the drinking age was lowered, or set at 18, there would not be such unforgiving outcomes, like deaths and lifelong injuries, which are usually caused from people who are under the age of 21 drinking alcohol. Although there are numerous groups that are fighting to keep the age
To continue with this argument, annually the government gains 223.4Mil dollars from the taxation of alcohol. Most speculate that by raising the drinking age to 21, this will decrease the amount of tax the Australian government receives from alcohol. However, statistics show that in terms of daily alcohol consumption, people aged 70+ are the highest consumers of alcohol with 18+ being at the very bottom of the spectrum. In reality, people aged around 18 years and below/above don’t actually have the money to purchase alcohol.
The legal drinking age in the United States will always be a point of contention. No one can settle upon a drinking age that everyone is in agreement with; should it be 18 or 21? Ages 18 and 21 are the most popular options, yet neither one has 100% of the vote. With the current legal drinking age in America standing at 21, meaning that people under the age of 21 cannot purchase or consume alcoholic food or beverages, there is the question of whether or not to lower it to 18 or 19 years old. This paper will argue that the drinking age should be lowered, and examine its impact on State University.
If young adults under 21 are allowed to drink, then the revenues for businesses would intentionally increase. For businesses, it would be great for the law to lower the drinking age because it would increase their profits of young adults under 21 purchasing alcohol. Researchers found that if the drinking age lowers, industries are likely to make a huge amount of profit (Science Daily). According to Science Daily, more people to consume alcohol will likely increase the amount of money in the industries. In this context, the more the
The elasticity of demand measures the buyer’s reaction to price as its changing. “Economists measure the degree to which demand is price elastic or inelastic with the coefficient E d, defined as E d = percentage change in quantity demanded of product X/ percentage change in price of product X” (McConnell, C. 2011). Therefore, Ed=∆Qd/∆Pd. When elasticity of demand is measured less than one, demand is considered to be inelastic. The coefficient in an inelastic range is less than one. When this takes place the percentage change in price is more than the percentage change in quantity. It can be said that when inelastic demand is present that quantity becomes less effected by price changing.
The stakeholder group that will gain most of the benefit from lowering the drinking age to 18 is the alcohol companies. In a sense, the stakeholders between ages 18 and 20 and alcohol companies go hand in hand. Because these young adults are, for the most part, eager to purchase alcohol, the potential skyrocket in sales for that age group would ensure massive profits for alcohol companies. This is made clear considering that underage drinkers in the United States consumed “an estimated 19.7% of the total alcohol consumed”
Lowering the drinking age will allow for parental guidance for the young people starting drinking alcohol. If younger people were allowed to drink with their parents they would not engage in risky behaviors such as asking strangers for alcohol. The drinking age in three western European countries is lower than 21 and in those countries the young people learn to control themselves(Wechsier ).The Amethyst Initiative,
In 1984 the United States Government approved the National Minimum Drinking Age Act that required that “the States prohibit persons under 21 years of age from purchasing or publicly possessing alcoholic beverages as a condition of receiving State highway funds.” Even though this bill was nowhere near the magnitude of the prohibition act that was passed less than a century before it, the act still damaged the relationship between individuals, firms, and the United States government. Although the intentions of the government were to control alcohol consumption among citizens aged 18-21, the passing of this act affected the equilibrium already established by a consumer-producer market, created a market failure and a black market, and introduced excise taxes into the market.
One of the most controversial problems within the United States is the policy of the national minimum drinking age of 21. I believe that the raising of the drinking age to 21 years old has created more problems than solving them. America has had past experiences with a similar situation when they enforced prohibition. As we know, prohibition was a nationwide constitutional ban on the production, importation, transportation, and sale of alcoholic beverages, which was a huge failure. America have tried prohibition legislation twice in the past for controlling irresponsible drinking problems. The first National Prohibition was during the 1920’s, and the state prohibition was in the 1850’s. These two laws were decisively repealed because they
The new audio greeting message affects the demand for greeting cards. The demand for greeting cards decreases because greeting cards and audio greeting cards are substitutes. The demand curve for greeting cards pads shifts leftward, from D0 to D1 in Figure 4.6. Simultaneously the fall in the cost of producing a greeting card affects the supply. The fall in the cost of producing greeting cards increases the supply and the supply curve shifts rightward, from S0 to S1 in Figure 4.6. At the initial price of a greeting card, $5.00 in Figure 4.6, there is a surplus of 60 greeting cards per week. The surplus forces the price lower, so the equilibrium price of a greeting card
Young people are considered to constitute the largest number of alcohol consumers and they account for a large portion of alcohol sales. This is despite the strict drinking laws that govern many countries as regards alcohol purchase and consumption. Underage drinking, which has been on the increase, is allegedly the major cause of alcohol-related problems facing the modern
Elasticity is a measure of the responsiveness of demand to changes in the price of a good or service. In the case of Steam Scot, when the price rises from 4 to 5, demand falls from 60,000 to 40,000 units. The original equilibrium market price of 4 pounds resulted in demand of 60,000 units and this generated revenue of 240,000 pounds. When the prices increased to 5 pounds the resulting demand is 40,000 units, and this generates total revenue of 200,000 pounds. When market price changes from 4 pounds to 5 pounds 40,000 pounds of revenue are lost in this indicates an elastic price elasticity of demand.
If the demand for companies output is inelastic then the change in price will have a smaller effect on change of quantity. Let’s say company will cut the price for 10 percent. This will cause the increase in demands for 5