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.)

Q - Using a diagram, explain how a well-enforced price floor could affect the market for alcohol and how consumption could adjust to an efficient level. Label the consumer surplus, producer surplus, and deadweight loss. (You can assume that firms understand market demand and will only produce the amount demanded at the price floor.)