A price floor is a price level above the equilibrium price that a government chooses to set as the minimum price at which producers are allowed to sell their goods and services. In the case of this news article, the main reason why Scotland's government wishes to impose a minimum price per unit of alcohol is that it wishes to discourage people from consuming as many alcoholic products. If their proposal is adopted and officially put into place, Scotland will be the first country in Europe to have such a limit on alcohol purchases. The more odds is that there will be a noticeable decrease in the quantity of alcohol consumed. This will in turn lead to fewer problems, in the form of drunk drivers, health issues, etc. The largest effect would probably be on the cheapest and strongest drinks, which is why the proposal has attracted a wide range of support from health campaigners.
The diagram below shows the situation that might exist if the Scottish government sucessfully implements a minimum price per unit of alcohol.
Without government interference, the equilibrium quantity demanded and supplied would be Qe, at a price of Pe. Following a price floor set at Pmin, the quantity demanded would become Q1 due to the increase in price; however, there will be an increase in supply to Q2. This will result in excess supply, which might motivate some producers to get around the price controls and sell their excess supply for a lower price, somewhere between Pmin and P1.
The government must also consider what effects a minimum price for alcohol would have on local pubs and taverns. Those who attempt to make an honest living from producing good-quality alcohol will most likely be affected just as much, if not more so, than the large companies who produce cheap but effective alcohol.
In conclusion, I believe that the Scottish government should implement a minimum price per unit of alcohol. Although there might be some negative consequences, the price floor would serve to help solve Scotland’s drinking problem.
