Question
Governments in Australia and around the world are considering implementing a minimum price (aka price floor) on alcohol. Using the Economic way of thinking learnt
Governments in Australia and around the world are considering implementing a minimum price (aka price floor) on alcohol. Using the Economic way of thinking learnt in this unit to formally explain the effect of this policy. Consider the external effects of alcohol consumption, the price elasticity of demand, taxes on alcohol, and the possible unintended consequences of a higher price on alcohol. To simplify analysis, please assume that alcohol is a single homogenous good. That is, do not differentiate between different types of alcohol and packaging (wine, beer, casked wine, spirits etc.).
For background information, you can read the following articles:
https://theconversation.com/a-minimum-price-for-alcohol-helped-curb-problem-drinking-in-the-northern-territory-is-it-time-for-a-national-rollout-154829
http://www.abc.net.au/news/2017-10-21/alcohol-floor-price-considered-tackle-abuse-wa/9071544
Question
Suppose that instead of using the price floor to restrict consumption, the government decides to impose a tax on alcohol. Can this achieve an efficient level of consumption? Please explain using a diagram.
(Include the diagram in the answer)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started