Market for alcoholic drinks

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Section B data response

Q26: Markets for Alcoholic Drinks

  1. Define the term ‘demerit good’.

A ‘demerit good’ is a good or service, of which consumption causes negative, affects on the consumer themselves. An example of a demerit good is alcohol. Due to the effect these goods or services cause, the government often imposes heavy taxes on the product to persuade people not to use them. Often a ban is imposed to help this, for example smoking in public places was banned by the Government in 2007.

  1.  Using Extract A identify two points of comparison between the prices charged for alcoholic drinks by different retail outlets in London in March 2008.

From Extract A, we can see the price of a pint of beer, glass of wine and measure of spirit; all vary in price from different retail outlets. In a public house in central London, it costs almost 3 times more to have a pint of beer than in a supermarket which would only cost you around £1.20. From the table we can see on average buying alcohol from an off-licence would cost you only a few pence more than in a supermarket. The most expensive place therefore to buy your alcohol from would be the public houses, costing around £2.50 a drink. It is more expensive to go to a pub in London than somewhere further up North. The reason it’s very expensive to drink in a pub because you, as a consumer, are paying for the overheads. The pub provides a venue, cool beer, atmosphere, lighting, heating and has to pay the brewery. So in effect buying cheaper alcohol from a supermarket misses out the ‘middle man’ and is almost 3 times cheaper. However, this can lead to negative effects such as alcoholism, purely because it’s so cheap to drink.

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  1.  With the help of a supply and demand diagram explain how an increase in the age limit to 21 might affect the market for alcoholic drinks.

In figure 1, we can see that in reducing the age limit for

 drinking to 21, it should in effect reduce the demand for

 alcoholic drinks. So in the reduced demand of alcohol,

the brewery therefore should be forced to cut back supply.

This could then lead the supply and demand diagram to

 look like figure 2.

The demand for alcoholic drinks is inelastic, no matter

 what rules ...

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