¶ … economist Approach The production and sale of alcoholic beverages contribute a small share in national product in the United States and in other advanced economies. However, the damaging effects of alcohol consumption on health and safety constitute a very significant economic burden, reducing our overall standard of living. Chronic heavy drinking causes organ damage that result in disability and early death. Other possible consequences include cognitive impairment, addiction, reduced productivity, neglect of family responsibilities, and birth defects. The acute effects of alcohol abuse are still more costly: traumatic injury and property damage from accidents, criminal victimization, domestic violence, unwanted sexual encounters and venereal diseases, and hangover. In sum, alcohol is not just another commodity. Around the world, historically and currently, public concern about the consequences of excess alcohol consumption for individual health and community well-being has been incorporated in cultural norms, which are often reinforced by private rules and government regulation. (J.Moore)

Two problems are particularly directly related to the case of alcohol abuse. First, researchers attempt to identify costs that are directly related to alcohol abuse.

Second, many costs resulting from alcohol abuse cannot be measured directly. Researchers use mathematical and statistical methods to guess such costs, yet recognize that it is difficult to calculate them exactly. Moreover, costs of pain and suffering of both people who abuse alcohol and people suffered by them cannot be estimated in any authentic way, and are therefore not considered in most case studies.

Cost of Alcohol Abuse

One study is conducted by Rice and his coworkers about alcohol abuse, Rice and co-workers estimated that the cost to society of alcohol abuse was $70.3 billion in 1985 (4); a previous study by Harwood and colleagues projected that the cost for 1980 was $89 billion. By adjusting cost estimates for the effects of inflation and the growth of the population over time, Rice projected that the total cost of alcohol abuse in 1988 was $85.9 billion, and Harwood estimated that the cost in 1983 was $116 billion. (Perez, O'Sullivan, & Sheffrin, 2012)

The differences among the estimates produced by these and earlier studies largely are the result of changes in methodology and sources of data. Because of these key changes, one cannot reach on the conclusion that the differences in the estimates reflect changes in actual costs. Although an improvement over earlier efforts, the Rice study does not consider some costs, such as the high costs of injury related to alcohol abuse.

Health Related Costs

The U.S. Centers for Disease Control and Prevention (CDC) estimated "alcohol-related mortality" as 105,000 in 1987, 4.9% of all deaths in that year. Nearly half (46%) of the deaths were related to intoxication, including accidents and intentional violence. By another conventional public health measure, "years of life lost before age sixty-five," such violent deaths constitute fully 80% of the alcohol problem in the United States. Organ damage from chronic excess drinking has a relatively small effect on life expectancy.

Some experts made a new procedure for calculating the costs of health damages. Rice and colleagues made a new procedure. They estimated treatment costs in short-stay hospitals using hospital discharge records, and calculated costs incurred in other settings using a variety of procedures.

Rice and co-workers calculated a cost of $6.3 billion for treatment of the medical consequences of alcohol abuse and treatment of alcohol dependence in all settings in 1985, and in addition, nearly $500 million for support costs, such as the costs of training medical staffs (4). In the prior study, However, Harwood and co-workers calculated that in 1980, such treatment costs were more than $9 billion, and support costs were nearly $1 billion.

Rice and co workers estimated treatment costs in short-stay hospitals using the average cost per patient -- about $460 per day in 1985 -- and applied this average daily cost to the approximately 5 million days of care for discharges for alcohol dependence, alcohol abuse, and a set of medical disorders linked to alcohol use. This produced a cost of $2.3 billion for 1985.

Elements of economics ways of thinking

In this paragraph, we would present a model for analyzing and addressing the problem of alcohol abuse by taking the assumptions of ceteris paribus (other factors remains unchanged)

We would take the assumption that if we increase the price of alcohol, the purchasing of alcohol would decrease, ceteris paribus (means other factors do not change like income of the consumers, or price of other substitute products).

People would respond to the price hike of alcohol and would like to shift to other substitute products. If the people...

(B.Tucker)
We would like to understand this phenomenon by taking the examples of price elasticity of demand, but this phenomenon operates under ceteris paribus (other factors remain constant)

For example, -0.5(price elasticity of demand) means that a 1-percent increase in price would reduce alcohol consumption by 0.5%. An extensive review of the economic literature on alcohol demand concluded that based on studies using aggregate data, the price elasticity's of demand for beer, wine, and distilled spirits are -0.3, -1.0, and -1.5, respectively (Leung and Phelps 1993).These estimates suggest that beer consumption is relatively insensitive to price changes (because beer is cheaper than wine and distilled spirits), whereas demand for wine and distilled spirits is very responsive to price (Frank J.Chaloupka M.G.)

People rationale

Price elasticity of demand observation represents that rational people would respond by not buying the alcohol products and would think at the margin as if they consume their money more on alcohol then they would not be able to their necessary things. Secondly, people should be given incentives in other beverages and these beverages should be promoted.

Solutions to alcohol abuse

Excise taxes

Much of the research in this area has concentrated on the question of alcohol excise taxation. How high these taxes should be imposed so that it looks justified. One standard is that the tax revenues should be adequate to pay the "external" costs of alcohol consumption, that is, the costs that are not borne by the drinker.

By that standard, it is not appropriate for the tax rate to take into account that drinkers are at great risk of injury, since they already "pay" that cost and presumably take it into consideration in making their consumption decisions. On the other hand, to the extent that drinkers place others at greater risk of injury (an "external" cost), that should also be reflected in the tax rate,

Fines and Liability Laws

Much of the drinking that leads to drunk driving occur on-premises, at bars, clubs, and restaurants. States have acted in various ways to reduce this deadly occurring, for instance by using the threat of fines or even license cancellation to discourage service to minors and intoxicated persons. A number of states have "dram shop" liability for commercial servers, holding them potentially liable for the damage done by patrons after drinking too much at these establishments. There is some evidence that the imposition of liability is effective at reducing highway fatalities. A recent study found that the behavior of servers in monitoring the drinking of adult patrons is affected by the management's perception of the likelihood of being sued.

Alcohol Advertising

Advertising also may play some role in promoting alcohol abuse and highway fatalities. Henry Saffer analyzed the relationship between fatality rates and alcohol advertising in the top seventy-five media markets. After accounting for regional price differences and population variables such as income and religion, he found that alcohol advertising was significantly related to total and nighttime vehicle fatalities, to the extent that a total ban on alcohol advertising might be expected to save several thousand lives per year. (J.Moore)

Relation between prescription drugs, demand, and supply of other products

Research and development corporation (RAND) conducted research and found that relationship between price increase and demand and supply of non-life threatening drugs is greater and people used to buy less when the price increases and relationship between life threatening drugs and price increase is less. As the price increases but it does not effect to a great deal the purchasing and supply of life threatening drugs.

Elasticity of demand and supply an important consideration

Elasticity of demand is an important consideration when we are considering a shift in the supply curve. For example when producers see that demand is elastic and can easily be increased by reducing the price of drugs for health care, diabetes, blood pressure etc. Then it would be purchased only when their cost is not too high and more by the poor people of the society. So, when the producers observe that their demand can be increased, only then they will increase their supply.

Alternatively, the elasticity of supply also affects the demand curve. If the supply is more, then its price will automatically will go down on the other hand if the supply is less, then its price will rise automatically.

Increasing cost industry with positive slope curve

It mostly happens that when a new firm enters into industry, the resource price increases…