How an Economist Would Approach the Problem of Alcohol Abuse
Alcohol abuse is a real disaster for any country. A lot of professionals try to deal with this specific problem and economists also can contribute to solving this issue. One of the main measures which may be takes is the price increase induced by taxation (Heien, 1995).
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The research has been conducted to find out whether people are going to reduce the amount of the bought alcohol if the prices are increased. Chaloupka, Grossman, and Saffer (2002) state in their research that considerable reduction of the alcohol consumption may be observed with the increase of the taxation on alcohol which is going to lead to the price growth.
Another economic activity which may be applied to the solution of the alcohol abuse problem is the creation of the conditions when alcohol manufactures lose their income. This lost productivity theory may lead to the income reduction of many manufactures, however, this loss cannot be compared to the present situation when the whole country’s economics suffers. First of all, health care expenditures of alcohol abusers are much greater. The insurance cannot usually cover the problems which occur.
Second, the productivity of the alcohol abusers is lower as they are unable to work efficiently due to their health issues and general poor condition of their organism. Third, the general impact on the society also causes many expenses, such as motor vehicle crashes, crimes, etc. Finally, alcohol abusers negatively affect the country image and social norms (Chaloupka, Grossman, and Saffer, 2002).
How Prescription Drugs Affect the Demand and Supply of Other Products
One of the main measures which are taken nowadays for the reduction of the alcohol abuse is drugs treatment. There are a lot of different medicines which promise to prevent further alcohol consumption.
Even though this measure is not really effective, many people continue applying to it when they want to stop drinking themselves or to help their friends or relatives to do it. Such combat with alcohol is really profitable for many people. First of all, it is profitable for drugs producers. The use of prescription drugs makes people consume other supportive medicine which help them cope with stress.
Alcohol abusers usually suffer from stress when they want to quit and consume drugs. Many people usually support drugs treatment with herbal remedies, or even substitute them. Traditional medicine still remains popular among people. Therefore, the suppliers of such products appear in winning position. Moreover, many people are sure that consuming drugs they are to improve their nutrition, therefore, the demand on such products as meat, fish, milk and vegetables may increase as well.
Elasticity of Demand and Elasticity of Supply Importance When Analyzing the Impact of a Shift in Supply and a Shift in Demand Respectively
Elasticity of demand and elasticity of supply are very important aspects in economics as well as the notions of supply and demand in general. The coordination between demand and supply shows how good the economics functions.
Analyzing the impact of a shift in supply, the researcher should consider the elasticity of demand as if the demand is elastic the price may be changed depending on the number of existing products at the market. However, when the demand is inelastic a price cannot be dramatically changed due to the limited range of elasticity (Mankiw, 2008).
The examples of a shift in supply in elastic demand environment may be presented in the supply of everyday products. If one specific product appears at the market in a greater amount, the price on other similar products of other producers should be reduced in order to meet the customers’ requirements. A shift in demand should be considered by the elasticity of supply. The elasticity of supply is the reaction of the demand on the changes of price.
In case the changes of price are significant while the change of demand – the supply is elastic. If the changes of price do not effect the changes in demand, it is possible to speak about the inelasticity of supply (Mankiw, 2008). For example, having the only bakery in the region, an owner can change the process depending on personal desire – the demand is not going to change as people do not have alternatives. However, if there are alternatives, human demand may change.
Increasing-Cost Industries and a Positively Sloped Supply Curve
Increasing-cost industries are such industries which costs grow with raise of the number of the similar industries in the regions. The situations when the supply curves are going to be positively sloped are characterized by the long-run activities. For example, the long-run supply curve is positively sloped for new houses, the more new houses are built, the higher price for the industry is involved.
The perfect competition is one of the main conditions for a positively sloped supply curve in increasing-cost industries. Apart from the new houses, the oil drilling may be used as one of the examples of the increasing-cost industries with a positively sloped supply curve (Burkett, 2006). These two examples perfectly meet the discussed issues as with the increase of the building new houses and with the increase of the oil drilling the cost of the activities is going to grow as well.
When a Perfectly Competitive Market Is Economically Efficient
Perfect competition is possible when a company is unable to affect the prices and no one is able to enter the market and have power there. A perfectly competitive market is economically efficient in several situations. Looking at the modern market environment, it should be stated that monopoly controlled by the government is the time when perfectly competitive market is economically efficient. For example, medicine is controlled by the government.
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Many drugs and other prescriptions are produced by the only manufactures in the regions and the entrance of the participants is impossible. The efficiency of such situation is in the inability of the chemical companies to set their own prices. Operating in the conditions of the perfect competition where no alternatives are possible, the companies still have to limit their prices to the offered frames.
Moreover, considering allocative efficiency which means a “quantity of output produced in a market” (Efficiency in Perfectly Competitive Markets, 2012) and productive efficiency which “requires that firms produce their products at the lowest average total cost possible” (Efficiency in Perfectly Competitive Markets, 2012) as the only possible advantages of the perfect competition, it should be stated that these conditions are achieved only at the long-run periods. Even though the conditions of the perfect competition are not spread and in most cases such conditions are artificially created, such markets may be efficicent.
Burkett, J. P. (2006), Microeconomics: Optimization, Experiments, and Behavior: Optimization, Experiments, and Behavior. Oxford: Oxford University Press.
Chaloupka, F. J., Grossman, M., & Saffer, H. (2002). The effects of price on alcohol consumption and alcohol-related problems. National Institute on Alcohol and Alcoholism. Retrieved from https://pubs.niaaa.nih.gov/publications/arh26-1/22-34.htm
Efficiency in Perfectly Competitive Markets. (2012). YouTube. Retrieved from https://www.youtube.com/watch?v=wnmhUpx63kE
Heien, D. M. (1995). Are higher alcohol taxes justified? CATO Journal, 15(2/3), pp.243-249.
Mankiw, N. G. (2008). Principles of Macroeconomics. Stamford: Cengage Learning.