This paper will explain how an economist would approach the problem of alcohol abuse. It will analyze how prescription drugs affect the demand and supply of other products and services in this country. You will read why the elasticity of demand is an important consideration when analyzing the impact of a shift in supply and why the elasticity of supply is an important consideration when analyzing the impact of a shift in demand. Finally you’ll see two examples of increasing-cost industries in Illinois and you’ll see why they have a positively sloped supply curve. Finally you’ll read how, under certain conditions, a perfectly competitive market is economically efficient.
Principles of Economics
Alcohol abuse is a constant problem in American society. Everyone from preachers to politicians has an opinion about how to stop the problem. The following are two possible ways an economist might approach it.
If the price of something goes up, people will buy less. Alcohol is no exception to this rule. An economist would recommend that retailers raise prices of alcoholic beverages as a way to prevent alcohol abuse. A study was conducted in British Columbia by Stockwell, Zhao, Martin, Macdonald, Vallance, Treno, Ponicki, Tu, Buxton (2013). This study showed how the increase in the price of alcohol would reduce alcohol related hospital admissions and reduced alcohol consumption. We can assume that all other costs such as manufacturing and distribution remained the same; ceteris paribus. One result of this study showed that a 10% increase in the average minimum price of all alcoholic beverages led to an 8.95% decrease in acute admission and a 3.4% immediate reduction in per capita consumption. By decreasing the amount of alcohol consumed, increasing the price of alcohol will eventually lead to additional positive side effects like a lower number of drunk drivers on the road. This will ultimately lead to lower insurance premiums and lower healthcare costs.
An economist would suggest the use of incentives…