Governments in Australia and around the world are considering implementing a minimum price (aka price floor) on alcohol. Your task is to use the Economic way of thinking learnt in this unit to formally explain the effect of the minimum price. You will need to consider the external effects of alcohol consumption, the price elasticity of demand, and taxation (an alternative way of reducing alcohol production/consumption). To simplify analysis, please assume thatalcohol is a single homogenous good. That is, do not differentiate between different types of alcohol and packaging (wine, beer, casked wine, spirits etc.).

Q1 - Using a demand and supply diagram for alcohol, explain why the market outcome may not be efficient. Label the consumer surplus, producer surplus, and the deadweight loss