Trade-offs in the off trade

Proposals to tackle alcohol-fuelled violence and health related problems in Scotland were announced yesterday. This is government intervention to tackle the market failures that result from alcohol, which has been a regular issue discussed in England and Wales as well. Some of the statistics given in this video report spell out the reasons for the concern north of the border; there has been a 20% increase in the number of people being discharged from hospital following alcohol-related treatment, Scots drink the equivalent of two litres more pure alcohol each per year than the English, and alcohol-related liver disease has overtaken heart disease as one of the top three killers there.

One measure proposed involves a “social responsibility fee” on some alcohol retailers to help deal with the costs of the adverse consequences of alcohol – an attempt to place a value on the negative externality and raise the price to a figure which covers the marginal social cost of the demerit good. There is also a suggestion of price fixing and regulation with a minimum price per unit of alcohol – opponents suggest the risk of government failure here include unfairly penalising moderate drinkers with a regressive tax and the possibility that it flouts EU law on competition as an unfair restriction on trade. There are other unintended consequences which may result – Scottish brewers and drink manufacturers provide a great deal of sponsorship for sports and music events as well as ‘Homecoming Scotland’, an events programme in the 250th anniversary of Robert Burns’ birth – the main event for May is Whisky Month – and those manufacturers may no longer afford their sponsorship if their sales are hit by new regulations.

In Finland there is stricter regulation. All beer wine and spirits which are more than 4.7% alcohol content are sold by a monopoly store called, appropriately, Alko. They are not allowed to discount prices, and any increase or decrease in government tax is directly passed on to consumers via prices, unlike the UK where retailers often absorb any extra duty imposed by the Treasury. In 2004 tax on alcohol in Finland was dramatically reduced, leading to price reductions of up to a third, depending on the type of alcohol. According to official statistics the retail consumption of alcohol increased by 9.1% in that year. Professor Hannu Alho has first hand experience of the cost of cheaper alcohol through his clinical work with patients in hospital. He says after the tax reduction in 2004 alcohol related hospital admissions increased by around 10%, and the number of deaths connected to drinking also went up. He said: “The trend is very very clear, you can see the increase in males and females, especially in young adults. That’s very worrying”. The Scottish authorities have used evidence from international studies such as this to formulate their proposals, but have to look at the trade-off between limiting damage to health from cheap alcohol, and threatening jobs and sponsorship of merit goods which depend on that trade.

Scottish alcohol plan at-a-glance

BMW - Bavarian Monopolist at Work [24 May 2012]
Unit 2 Macro: Cyclical and Structural Economic Issues Facing the UK [23 May 2012]
Unit 1 Micro: Revision Presentation on Elasticity of Supply [16 May 2012]
Unit 1 Micro: Revision Presentation on the Price Mechanism [16 May 2012]
Unit 1 Micro: Price Elasticity of Supply [13 May 2012]
Unit 1 Micro: Income Elasticity of Demand [13 May 2012]
Unit 1 Micro: Price Elasticity of Demand [13 May 2012]
Unit 1 Micro: Revision Blogs on Markets and Intervention [10 May 2012]
Made in China - but not quite so cheaply…... [7 May 2012]
Unit 2 Macro: Monetary Policy and Inflation Glossary [5 May 2012]
Alcohol - negative externalities of consumption and production. [12 Apr 2012]
Unit 3 Micro: Evaluation Question on Supermarkets [11 Apr 2012]
Unit 3 Micro: Revision on Monopoly Price and Output [6 Apr 2012]
Unit 1 Micro: Revision on Producer Surplus [4 Apr 2012]
Unit 3 Micro: Post Office Threatens Smaller Photo Businesses [2 Apr 2012]
Unit 3 Micro: Revision on Scale Economies, Technology and Prices [1 Apr 2012]
Unit 1 Micro: Revision on Maximum Rents in Housing [1 Apr 2012]
Unit 1 Micro: Brazilian coffee buffer stock hit by falling prices [29 Mar 2012]
Unit 3 Micro: EU Imposes Further Price Cap on Mobile Phone Companies [29 Mar 2012]
Life in the Slow Lane - UK Growth in 2011 Lags the Euro Area [28 Mar 2012]
Price of Stamp increases to 60p [27 Mar 2012]
Unit 1 Micro: Government launches New Buy Loan Guarantee Scheme [12 Mar 2012]
Unit 4 Macro: Focus on India - World’s Cheapest Computer [26 Jan 2012]
2012 - Carnage on the High Street [28 Dec 2011]
Unit 3 Micro: Tacit Collusion in the Supermarket [27 Nov 2011]
Beyond the Bike - What is the value of life in Africa? [19 Nov 2011]
Pasty Prices - Something to Chew Over [19 Nov 2011]
Unit 3 Micro: Time of Use Pricing for Energy [2 Nov 2011]
Unit 3 Micro: Economies of Scale and the Kinect [31 Oct 2011]
Unit 1 Micro: Google Maps to Charge for Usage [31 Oct 2011]
Unit 3 Micro: Price Discrimination in the E-Book Market [31 Oct 2011]
Unit 1 Micro: Is the Sun Dipping on Solar Subsidies? [27 Oct 2011]
Unit 1 Micro: University fees and elasticity of demand [24 Oct 2011]
Unit 1 Micro: Economists attack food price speculation [24 Oct 2011]
Unit 3 Micro: Tesco Behaving Badly - Price Anchoring [17 Oct 2011]
Unit 3 Micro: Contestable Markets - Lucozade takes on Coca Cola [10 Oct 2011]
Unit 1 Micro: Homework Assignment on Market Prices [2 Oct 2011]
Unit 1 Micro: The Supply and Demand Rap! [28 Sep 2011]
Unit 1 Micro: Exercise on Equilibrium Market Prices [27 Sep 2011]
Putting the “discrimination” into price discrimination! [26 Sep 2011]
Unit 1 Micro: Exercise on Market Demand [25 Sep 2011]
Unit 2 Macro: Economic Growth and Inequality [14 Sep 2011]
Unit 2 Macro: Value Added in Production and GDP [11 Sep 2011]
Unit 4 Macro: Baltic Dry Index and Global Weakening [19 Aug 2011]
Unit 1 Micro: The Price of Football [2 Aug 2011]
Unit 1 Micro: Cotton Prices and the Retail Price of Clothing [13 Jul 2011]
Unit 3 Micro: Oligopsony - Dairy Losses Drive Farmers from the Fields [10 Jul 2011]
A2 Micro: Oligopoly and Collusion [20 May 2011]
A2 Micro: Oligopoly [20 May 2011]
A2 Micro: Price Discrimination [19 May 2011]
Unit 3 Micro: Monopsony Power in Markets [19 May 2011]
Unit 3 Micro: Perfect Competition [19 May 2011]
A2 Micro: Business Growth [18 May 2011]
A2 Micro: Minimum Efficient Scale [18 May 2011]
AS Micro: What´s really behind the oil price rise? [10 May 2011]
AS Micro: Rising Global Food Prices [2 May 2011]
AS Micro Revision: Public and Private Goods [21 Apr 2011]
Key AS Micro Terms: Costs and Profits [16 Apr 2011]
Key AS Micro Terms: Prices [15 Apr 2011]
Information Failures: Tesco and Second Hand Cars [3 Apr 2011]
AS Macro Key Term: Relative deflation [2 Apr 2011]
AS Micro Revision: Banana Prices [1 Apr 2011]
OCR F585 June 2011: Data Charts [30 Mar 2011]
Keeping Track of UK Macro Objectives [18 Mar 2011]
Timetric: Mortgage Lending and Mortgage Rates [14 Mar 2011]
AS Macro Revision: Investment Spending [12 Mar 2011]
EU ruling on sex equality: price differentiation, price discrimination or an Unintended Consequence? [1 Mar 2011]
Information Failure: The UK Illicit Drug Market [28 Feb 2011]
Ways to watch movies - cross elasticity of demand in action! [3 Feb 2011]
EU Economics: Hopes for a low carbon future in Europe [3 Feb 2011]
Shorting the market - the vultures target HMV [23 Jan 2011]
Economics Q&A: Will the rise in VAT harm the UK’s economic performance? [17 Jan 2011]
Economics Q&A: How might rising food prices affect food retailers and manufacturers in the UK? [16 Jan 2011]
A Motorbiking Triumph [13 Jan 2011]
HMV - another busted flush on the High Street [6 Jan 2011]
Economics Q&A: What are some of the benefits and drawbacks of a period of rising world food prices [4 Jan 2011]
Behavioural Economics - Public Policy and Behavioural Change [30 Dec 2010]
Pricing tricks and behavioural economics [12 Dec 2010]
HMV on the brink? [9 Dec 2010]
OCR A2 Economics F585 (Feb 2011) - Price Volatility [8 Dec 2010]
Orange, iPads and the Lock In effect [29 Nov 2010]
Cashing in on pricing errors? [27 Nov 2010]
Growth and Strategy at Domino’s Pizza [27 Nov 2010]
Energy Oligopoly - Price Investigation is Launched [26 Nov 2010]
Agflation - a new food price crisis in 2011? [18 Nov 2010]
Pull the other one…... [13 Nov 2010]
Watch out for the £7 chocolate bar! [9 Nov 2010]
The Market for Potash [30 Oct 2010]
Economics at the Movies - Austin Powers and Inflation [23 Oct 2010]
Economics at the Movies - Hudsucker Proxy and Consumer Demand [21 Oct 2010]
Economics at the Movies - Billy Ray Valentine learns commodities [20 Oct 2010]
Economics at the Movies - Pretty Woman, Consumer and Producer Surplus [19 Oct 2010]
Picturenomics (1) - Congestion and Externalities [18 Oct 2010]
Lifting the cap on tuition fees - a question of price elasticity? [10 Oct 2010]
From heart transplants to watermelons - elasticity of demand [5 Oct 2010]
Damien Hirst - Artist and Economist ? [30 Sep 2010]
Smartphones and Apps - Complementary Demand [13 Sep 2010]
Scotland nudges towards minimum alcohol price [3 Sep 2010]
Searching for the right price for water [30 Aug 2010]
Potash - a battle for grey dust that has become gold dust [26 Aug 2010]

ECONOMICS TEACHER RESOURCE NEWSLETTER

Join over 6,000 other Economics Teachers in the UK and around the world who receive the tutor2u regular Economics Resource Email Newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops + loads of great ideas for teaching economics from our blog authors.