The Market for Alcoholic Beverages, Questions and Answers

2 Questions to address: a) What do we know about the demand for alcohol, and how is this relevant to policy makers wishing to curb consumption? b) What can you determine about the supply of alcoholic beverages (in terms of industry structure)? How might individual firms hope to get ahead in this market? c) Explain, using diagrams, how individual producers in this industry might be affected by the price floor implemented in Scotland. What determines the extent to which they are affected? d) Why do you think the policy makers have opted for a price floor over a tax? The Market for Alcoholic Beverages It is stated in The Economist print edition (2013) that according to World Health Organization, â€Å"the global consumption of alcohol has been†¦show more content†¦If the firm sells more than Qo of beers, the profit will fall. Thus profit for the beer firm is area price P profit, B, C and P1 (shown in Figure 1.2b). We can get the value by getting Qo multiplied by difference in P profit and P1 (Profit = [P-ATC] x Q). In a long run, the beer firm can charge price higher than Average Total Cost and make profit. But certainly this will attract new firms to enter beer market (Hubbard et al. 5 2012). Therefore demand and MR will shift as new firms enter causing the first beer firm to break even. To avoid losing profits, Hubbard et al. (2012) indicate that firms need to convince customers that their product is indeed different through marketing. Scottish parliament imposed a price floor of 50 pence on hard liquor in May 2012. Price floor is â€Å"a legally determined minimum price that sellers may receive† (Hubbard et al. 2012). Figure 1.3 represents alcohol market when price floor is applied. Before price floor, area ABD was consumer surplus and area CE was producer surplus. As soon as price floor is inflicted, area B from consumer surplus is transferred to producers and area DE will become a Deadweight Loss. There is a deadweight loss because price floor has reduced the sum of consumer and producer surplus. Likewise, the price floor has caused the MB to become bigger than MC. In other words price floor will reduce economic efficiency (Hubbard et al. 2012). The extent where a firm is affected can be determined from theShow MoreRelatedOn-going Issues in the Anti-dumping Investigation911 Words   |  4 Pagesto the answer of Mr. Joseph Bosh , an officer of communication office of WTO whether the WTO has a purpose to reform the new definition of the like product which stated in article 2.6 of anti-dumping agreement, the answer was yes, he did agree that the definition for the time being is vague and ambiguous, so WTO has included about this issue in ongoing Doha round. 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