Economics for Business
Final Case Study
To be completed by the student upon submission:
Word count (excluding reference list): 1471
1. Key Issue
These news will indicates the federal government has increased the excise on alcopops, a litre pure alcohol increased from 39 dollar to 67 dollar and which means the price of alcopops will hike of between 30cents and $1.30 a bottle, depending on the alcohol content. This change is able to help to tackle the binge-drinking of the teenagers, particular the young girls. Moreover, this government control brought a negative response from Australia Liquor merchants. However, this move will raise $2 billion over four years to the government and increase preventative health schemes budget.
1. Key Stakeholders
The tax hike of alcopops will causing widespread impact and may affect three groups .There are young girls, Australia Liquor Merchants and the federal government.
Firstly, the young girls are the most directly influenced by increasing the excise on alcopops. The Howard government indicated the amount of young girls drinking alcopop increased rapidly from 14 per cent to 60 per cent. Obviously, the young girls become the biggest consumer groups of the alcopop. However, the young girls who have lower income and them petty tight on money, thus, they will stop buying after increase tax on alcopops. Overall, young girls will depends on price to change their habits so raise the tax of alcopops could help to tackle the binge-drinking of the young girls.
Secondly, the consequence will impact the Australia Liquor Merchants. For example, the sales of alcoholic fell about 30 per cent after the tax hike of 70 per cent, but spirits sales increase by approximately 50 per cent. And the tax will reduce alcopop consumed amount but caused alcopop drinker to drinking straight spirits. Therefore, they consider the taxes were not effective tools to protect health.
Finally, the excise on alcopop will increase the federal government revenue. Alcopop tax jacks up spirits sales, which could create a revenue boom for the government. On the other hand, the government also could gain an extra $2 billion over four years for raising taxes on alcopop which could be used to invest the preventative health schemes, such as treatment programs and overhaul hospital.
2. Economic Theories
This case includes four key economic theories. There are law of demand and supply, complement or substitute goods and government intervention.
2.1 Law of demand
D1 D2 Quantity
Diagram 1 Q2 Q1
Law of demand refers to the price of a good and the quantity demand is inversely related, ceteris paribus. In the article, the government raise excise on pure alcohol, the price increase by between $39 and $67 a litre, which means a bottle alcopop price increase 0.3 to 1.3. The price changes lead to the alcopop consumption decrease about 30 per cent. For instance, the young girls pretty tight on money, when alcopop price rise up they stopped buying them. According to law of demand, the demand curve shift left D1 to D2. Therefore, increase price of alcopop result in decrease quantity demand.
2.2 Law of supply
Law of supply states ceteris paribus, raise price of a particular good result in increased the quantity supplied. There are some different factors could influence the supply. For example, this article points out the price of alcopop goes up could increase the cost of production. Moreover, the alcopop consumption fell almost 30 per cent and the government through intervention wants to reduce teenager binge-drinking problem. Suppliers consider those negative situations and decrease supply quantities as tax of alcopop hike 70 per cent. To sum up, the