Solutions for the Alcohol Abuse Problem From

¶ … solutions for the alcohol abuse problem from economists' point-of-view. The second section of the paper addresses the situation of prescription drugs and how they can affect the demand and supply of other products and services. The paper continues with a section that explains the relationship between supply modification and elasticity of demand, and between demand modifications and elasticity of supply. There is also a section that discusses increasing-costs industries. Another section of the paper address the conditions required for competitive markets to be economically efficient.

There are several solutions that economists can offer when addressing the alcohol abuse problem. In this case, the problem is regarded as a negative externalities situation of the production and consumption of alcohol. The assumption in this case is that alcohol abuse is a negative externality because of its consequences, like drunk driving and the effects on consumers' health and on relationship with other individuals. The Coase theorem is one of the solutions that can be applied in this case. This means that the parties involved in the process and affected by alcohol abuse can negotiate compensatory benefits in accordance with their power of influence on decision makers and with the importance of consequences determined by this situation. The success of this solution also depends on the cost of negotiation. Another solution to this problem is represented by Pigouvian taxes and regulations. In this case, the level of established taxes must be similar to the value of the externality. Therefore, the variable that must be modified is represented by the taxes associated with alcoholic beverages. Regarding the marginal change, it is obvious that prices of alcohol would increase. As a response to such actions, individuals are likely to reduce consumption.

2. It has been observed that prescription drugs affect the demand and supply of other products and services. A higher demand of prescription drugs also determines an increased demand for doctors, pharmacists, and production facilities. This leads to increased demand for workforce in this field and to increased competition between producers, which determines smaller prices. In addition to this, an increased percentage of customers' income spent on prescription drugs leads to reduced demand for products and services like clothes, education, entertainment, and others. The increased prices of prescription drugs can determine reduced demand of these products. Furthermore, this can increase the demand for substitute products, like over-the-counter drugs.

3. The elasticity of demand is an important factor that must be analyzed in case of shifts in supply. In other words, it must be analyzed how demand is likely to modify in case supply increases or decreases. In case the supply increases the prices would normally reduce. In such cases, demand can also increase. In case the prices are not reduced, it is possible that demand will not increase. For example, if a larger number of cell phones is provided to customers, they could buy more cell phones if their prices reduce in comparison with previous price levels. In case supply reduces, this means prices increase, which leads to reduced demand.

The elasticity of supply is important when analyzing the impact of a shift in demand. This is because when demand for certain products and services increases, the supply must also increase in order to satisfy the excess demand (Adam, 2009). This can be applied to most products and services. The higher the increase of the demand is, the higher is the impact on supply. For example, if customers start thinking that wine is better than beer, their behavior will modify in that direction. In other words, they will want to buy more wine, and the demand for wine will increase. This leads to increased prices and an increased supply. But if the demand for wine reduces, so will the supply, because it would not be cost effective for sellers to store larger quantities of wine than they sell.

4. There are several increasing-cost industries. Such industries are represented by the housing industry and by the vegetables production industry. These types of industries have a positively-sloped supply curve. This is because the development of these industries determines higher production costs, and also higher prices of resources used in these industries. These industry developments are the result of increased demand. This situation also determines new companies to address these markets. This means that the same level of resources that companies in these industries require for production must be divided between a larger number of companies. This leads to increased prices of these industries.

This situation and the competition between producers also determine increased labor costs, because more companies fight for the same number of workers. Therefore, increasing-cost industries also influence the workforce market.

5. Perfectly competitive markets can be economically efficient. Perfect competition refers to markets where there are no economic agents large enough to establish the price of homogenous products. There are several conditions that must be met in order for this type of market to be considered economically efficient. For example, this can be reached in a market with an infinite, or very large number of buyers and sellers. This refers to large number of buyers that are willing to purchase the product at a certain price, and sellers that are willing to supply the product at a certain price (Investopedia, 2011).

Such a market can be economically efficient if it would provide no entry and exit barriers. As we can observe, there are many industries with a reduced number of producers with great financial power, where smaller producers find it difficult to entry. Such markets are not competitive. This is not in the favor of customers that must face higher prices in comparison with competitive markets, with numerous competitors that determined reduced prices.