Economics of Alchohol Abuse Alcohol for Consumption Term Paper

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Economics of Alchohol Abuse

Alcohol for consumption is not a necessary food item, but for some has become a standard part of adult culture. Increasing the level of alcohol consumption, however, moves from an economic paradigm to a social issue due to the ancillary health and behavioral effects from alcohol abuse. In turn, this becomes part of economics in that it requires fiscal resources to treat societal issues caused by alcoholism: domestic abuse, crime, traffic or driving issues, etc. The economic effects of alcohol are undebatable, and are pervasive in the overt and covert areas of the economy (short- and long-term) (Fogarty, 2006).

In the economic sphere of political and social policy, alcohol, like tobacco and gambling, are considered a "sin" tax that is ostensibly designed to reduce transactions for issues society considers dangerous or undesirable. However, when it comes to alcohol, many see that this type of a sumptuary taxation policy can contribute to black markets, regressive in that it discriminates against the lower classes, and not normally value added (higher quality products are more likely to be consumed by the wealthy). Sin taxes on alcohol seem to also fail to affect consumer's behavior since alcohol consumption is largely an individual decision (Williams and Christ, 2009). The government sees taxing alcohol as a way to raise revenue to both police and control the product, adjusting the supply and demand curve, while the alcohol (and cigarette) industries see raising sin taxes as being counter-productive to the overall economy, citing negative impacts on lobs, local businesses (restaurants, bars, liquor stores, etc.) (Tobacco, Alcohol, 2012).

Potential economic solutions to alcohol abuse, depending upon the paradigm, might include additional funding for education to teach youth the different between safe and risky drinking and to screen for alcohol problems, to cover treatment through health insurance, and to monetarily support treatment and recovery through economic policy. Because alcohol abuse costs over $130 billion in lost productivity, it is important to try to minimize that effect through not only taxation on consumption, but the ability to minimize the abuse from a socio-economic model (Ensuring Solutions, 2011).

Part 2 - A prescription drug is a licensed medication that is regulated by law to require a medical prescription before it can be dispensed. This is in contrast to Over-The-Counter (OTC) Products, which may be obtained at will. In the U.S. The Food, Drug and Cosmetic Act defines what constitutes a prescription drug, requiring certain clinicians to write a "script" or order for that drug. Ostensibly, this is designed to protect the public from overuse of narcotics, or to have individuals consult with a medical professional prior to taking certain substances (Avorn, 2004). From an economic perspective, the overall cost of prescription drugs tends to rise as the economy slides; people have more trouble paying out of pocket expenses for drugs, demand slides, and price increases. In addition, as the economy falters, consumers cut health spending which has a viable effect on both the manufacture and development of prescription drugs (Fuhrmans, 2008).

On the other hand, the ebb and flow of prescription drugs has an effect upon the OTC and non-regulated industry. For the vitamin and supplement industry, rising prescription costs and media issues sometimes push consumers towards more natural options, even at times if those options are not covered by traditional health insurance. OTC remedies are often the first or second stage prior to seeking the help of a medical professional, particularly when consumers have little disposable income for even a co-pay. Length of time in doctor's offices, costs and availability of drugs, as well as side-effects and potential long-term effects also impact the manner in which prescription products drive the ancillary market.

Part 3- Economic paradigms look at the manner in which good and services are produced, distributed and consumed within a society. One of the ways that an economist looks at a market is to ask how economic agents interact within that environment to cause trends on production and consumption. One primary principle is the interaction between production, price, and demand of a good. In general, price elasticity of demand is an economic measurement that shows the responsiveness of the quantity demanded of a good or service to its price. The demand for a good is elastic when is greater than one -- or changes in price have a relatively large effect on goods demanded. Of course there are a number of variables present regarding price elasticity: type of good, luxury or necessity, duration of the market cycle, and availability of that good. In most economic scenarios, though, as price increases, demand decreases; again, depending on where the item was priced in the first place (Mankiw, 2011). One example of the effects of supply and demand are on the cigarette industry.

Due to a number of causal, but linked, factors, it appears that the long-term demand for cigarettes will drop as taxes and cigarette prices rise. A summary of the research shows that for every 10% increase in cigarette prices that would be an overall reduction in consumption by 4 to 5%. Too, the effects of increases in cigarette prices are most certainly not limited to the reduction in smokers or even the consumption amounts by current smokers (cutting down).Studies equally show that 1/2 the impact of price on adult smoking is on the actual decision to smoke. The flip-side is that as cigarettes become more expensive due to taxation, and demand falls, less revenue will be collected in order to deal with the current economic impact addictive smokers have on society. While estimates of at least 8% over time reduction based on current trends to raise cigarette prices, thus causing fewer people to start smoking, it will be some time before enough smokers have lowered their consumption or quit smoking to have a positive effect on the healthcare and employment markets (Chaloupka, 1998).

Part 4- An increasing cost industry is one that, with the entry of a new firm or firms, causes an increase in demand that, over time, increases the cost to do business which increases the minimum efficient scale of production. This is actually the case for most industries, at least within the capitalistic paradigm. When a new firm enters the market, the resource prices increase so the long run cost curve does so as well, causing the entire curve to shift upward. The result then becomes a higher equilibrium price than the original even as the industry or service produces a larger output, but at a higher product price. The higher price is needed to induce more production, thus continuing to increase overall price (Profit Maximization, 2010).

Within most markets we can see increasing cost industries in food production and restaurants. As more and more competitors enter the market, several things happen. First, the cost to get the raw product to the restaurant becomes higher as production and distribution costs rise (labor, machinery, land, fertilizers, gasoline, trucking fees, etc.). Add to this an increase in minimum wage, rents, insurance, credit card/banking fees, and the cost of doing business increases as well. We then have an industry in which it costs more to purchase and inventory product, as well as to produce and serve that product. Fad industries can also be examples of increasing cost industries. One example deals with coffee. In the early part of the 21st century, thanks to Starbucks, more and more people began to covet espresso and/or gourmet coffee drinks. Soon, there were baristas and coffee stands on almost every block, flooding the market with essentially the same product. To fuel this, the supply of coffee beans experienced a surge, but because of the nature of the plant, the geographic area it grows, and the labor market, over time, the price of coffee beans on the open market rose, rather than decreased. In conjunction with this, consumer preference leveled out and only the most ardent, tenacious and successful stands remained in business. Costs to continue to do business thus rose in relation to supply and demand, product (coffee), ancillary products (cups, etc.) and labor. In addition, this increased cost industry was forced to add a more expansive menu to keep up with competition, requiring more outlay of costs in inventory and product offering.

Part 5- Within an economic system, one must understand how to bring a product to market, establish trade, and then utilize forms of distribution to get that product to the consumer. Within any economic system, there are a number of different types of agreements and templates that may be implemented. Some, of course, are legal and encouraged, others illegal and discouraged. For example, in a given marketplace there are ways industries and businesses can approach business competition. Collusion is an agreement that occurs between two entities to limit open competition by deceit or fraud. Within that same market, if one business or entity dominates the market, a monopoly is reached. This monopoly can be geographic (structured based on geographic criteria -- easier to produce and ship…

Sources Used in Document:


Ensuring Solutions to Alcohol Problems. (2011). Ensuring Solutions. Retrieved from:

Profit-Maximization in the Long Run. (2010). Welker'sWikinomics. Retrieved from:

Tobacco, Alcohol Industries Reject New Sin Tax Bill. (February 22, 2012). ABS/CBN News. Com. Retrieved from:

Avorn, J. (2004). Powerful Medicines: The Benefits, Risks, and Costs of Prescription Drugs. New York: Random House.

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