Principles of Economics

Topics: Supply and demand, Price elasticity of demand, Economics Pages: 4 (1380 words) Published: April 26, 2013
Assignment 1: Principles of Economics
A March 2010 report on alcohol abuse identified American adults make up over 30 percent of alcohol abusers or are suffering from alcoholism (Roberts, 2010). The report interviewed 43,000 adults in the 18 and older category and brought to light the dependency on alcohol consumption by adults as well as its far-reaching implications of costs associated with this addiction. An economist would approach the problem of alcohol abuse by making the assumption that alcohol addiction and its demand are associated with the price of alcohol. We apply the ceteris paribus assumption that all other associated costs remain unchanged such as price of manufacturing, availability, and distribution costs. In a report written for the National Institute on Alcohol Abuse and Alcoholism, the authors state “Economic studies of alcohol demand focus mainly on the effects of price on alcohol consumption” (Chaloupka, Grossman, and Saffer, 2002). There are several less expensive substitutes so there will be elastic demand because it is easier for the consumer to switch. Incentives such as lower health care costs, treatment programs through company plans or other programs will promote a decrease in alcohol consumption, individual costs, and social problems, and ultimately improve satisfaction to the person. Other incentives may include good driver programs from insurance companies for adults of drinking age. An alternate solution is to do a marginal change in the minimum drinking age. This change may decrease the demand slightly but will still maintain the upward shift in the supply curve for alcohol consumption. Studies have shown States continue to work towards changing the law for the minimum drinking age to help dissuade young adults from drinking. Young adults in college may be incentivized to control their abusive drinking by maintaining good grades and a clean driving record. In the same report, Chaloupka, Grossman, and Saffer (2002)...

References: Chaloupka, F.J., Grossman, M., & Saffer, H. (2002, August). The Effects of Price on Alcohol Consumption and Alcohol-Related Problems. National Institute on Alcohol Abuse and Alcoholism. Retrieved November 2, 2012, from
IBIS World. (2012, July). Dairy Farms in the US: Market Research Report. IBIS Retrieved November 7, 2012, from
Roberts, J. (2010, March 1). 30% Of Americans Abuse Alcohol, Study Says. CBS News. Retrieved November 1, 2010, from
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