Principles of Economics Essay

The most general function of economics as a social science is to investigate and evaluate the quality of life in the society and to decide how, in what way and under which conditions the welfare can be reached, protected or increased. Most of the social problems are thus related to the economic issues, and alcohol abuse is not an exception.

It goes without saying that production of alcoholic drinks is a highly profitable business. Although the alcohol market is extremely heterogeneous about the world and there are a lot of restrictions, the producers of alcohol enjoy a number of benefits in doing business, as this product is demanded in various cultures, in various social groups, it becomes habitual and can extract economic synergies in a definite way. On the other hand, the long-term consequences of alcohol addiction affect not only the individual, but very often his family, community and the entire society after all. Thus, it is important to weigh up all the advantages and drawbacks of the alcohol business in order to come to the compromise between the legitimate liberty and social welfare.

The economic way of thinking is first of all connected with the dynamics of supply and demand. The question is in what way the prices are determined. The alcohol market is a market where the prices are determined not only by the expenditures on resources; the current local policies are taken to account as well. There have been a number of studies reflecting the correlation between the demand and the prices for alcohol drinks. The demand for alcohol drinks is elastic which means that changes in prices have an effect on the quantity of a good demanded. In case of alcohol the change is negative. While the price is set so that the PED is exactly one, revenue is maximized. Historic sales data, private and public surveys are used to calculate the elasticity of price. First the changes are modeled and then the real life data are statistically analyzed. Statistics shows that beer and wine are less elastic than spirits in the United States (-0.3, -1.0 and -1.5, respectively). By contrast, soft drinks demands are much more responsive to changes in prices (for example, -3.8 for Coca Cola and -4.4 for Mountain Dew). As Sullivan & Sheffrin (2003, p. 26) underline, “when demand is more inelastic than supply, consumers will bear a greater proportion of the tax burden than producers will.” The elasticity of demand influences the supply policy, but when the amount of consumption is decreased, the producer has to increase prices not to lose revenues. Tobacco, for instance, is a highly elastic product in the terms of supply (7.0 for Long Run).

Still, the economic downturn does not lead to the decrease in the ethanol consumption, as it has been lately found out. Michael T. French (2011, p. 101) underlines: “When the economy is down, alcohol consumption goes up.” On the one hand, the income loss and unemployment mean fewer resources for acquiring alcohol and other unhealthy behaviors. On the other hand, not only economical reasons influence the consumer’s choices. As macroeconomic conditions deteriorate, heavy drinking and alcohol abuse or dependence do increase significantly. This tendency is first of all associated with the stress and other psychological problems. Even those who stay employed tend to be more disposed to binge drinking in the time of economic downturn. Another interesting correlation is that the higher the educational level and income of individuals are, the more common binge drinking is.

The next elements of economic way of thinking are rational behavior and efficiency. It has been found out that although the increase in prices negatively influences the demand, the consumers tend to look for other decisions apart from quitting drinking. For example, they may choose to drink at home instead of drinking in pubs and bars; they may substitute high quality drinks by cheaper analogues without lowering the amount of alcohol consumed. At the same time, efficiency means that the optimal way of producing and distributing goods is searched by the producers, and many producers look for the way to leave out the legislation and use some fraud methods to increase the revenues. However, it is still important to find a compromise for a sound business.

The fourth component of economic way of thinking is Cost Benefit Analysis. It is the most significant task for the economics to take, as through this analysis it is evaluated whether the benefits of the project outweigh the drawbacks. All social benefits and social costs are taken into account and concerned.

The number of problems caused by alcohol consumption includes worsening of performance at a working place. It has been found out that when prices for alcohol are increased, the consumers tend to drink less ethanol. Consequently, the society then faces fewer alcohol-related problems too, while “alcohol abuse imposes large external costs on others” (Cook & Moore 2002, p. 120). The same effect is reached when special measures to control the alcohol consumption are taken. The measures include the restriction of alcohol availability.

In the meantime, Gene Ford refers to the investigation conducted by David Heien and David Pittman who stress that the governmental studies do not reflect the reality, as there are a lot of fabrications. At least, they report annual societal costs of drinking at around $9.5 billion, which is only 7 percent of the figure reported by the National Institute on Alcohol Abuse and Alcoholism (NIAAA). Further on, Ford stresses that the society does not experience enormous costs due to the alcohol addiction, as the addicted employers are easily substituted (Gene 2003, 133). As for the individuals, their habits are their private affairs, and there is a good deal of other way to become a bad worker and to quit the job. That is the question of personal choice. And at the same time, the society experiences great contributions from tax revenues and the comings to the state and national economies. What is more, alcohol production is also a supplier of millions of jobs, so the society also wins much from the business.

Still, the benefits listed do not justify the lack of alcohol control measures. As the impact of the alcohol addiction on health and way of life is still very strong, it constitutes a substantial social and economic burden which should be eased as much as possible. Damage to property, traumatic injury, domestic violence, criminal activity, accidence of unwanted sexual encounters and venereal diseases can be decreased by the increase of prices, excise taxes, penalties for driving under alcohol’s influence, by minimum age of purchase and a licensing system for retail outlets etc.

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