EconomicsWithAneesh

Explain the likely effects of imposing indirect taxes on alcohol [10 marks] Alcohol is a demerit good, a good that has a greater private benefit than social benefit which leads to a loss of welfare in society. Indirect taxes come in two types: ad valorem, which is a price imposed for each transaction(such as VAT) and specific taxes that aim to make consumption less viable.  Through the use of Figure 1, I have shown the effect of imposing a specific tax (tax per unit) onto alcohol the tax has caused the price of alcohol to move from P1 to P star and hence reduce the quantity demanded of alcohol. This increase in price will affect consumers and producers. There will be a reduction in the number of consumers that possess effective demand for alcohol which may cause them to stop drinking alcohol or move to the substitutes. This depends on how inelastic consumer demand is as if demand is highly inelastic consumers may still pay the higher price for their example exacerbating the problem...

"Think of a recent decision that you needed to make. Discuss how insights and tools from economic theory and analysis might have been helpful in making the decision." [Essay Competition-    awarded a certificate of commendation and a trip to Cambridge ] Sitting with my family at our favorite restaurant, I was confronted with a menu and faced with what seemed like a simple task: choosing what to eat. As I scanned through the options, I quickly realised this was anything but easy; with so many choices and limited time, I found myself applying economics to make the best decision I could. When choosing a drink from the menu, I understood how several principles of behavioral economics had been implemented, and I was not to be fooled! I immediately noticed price anchoring was being used; the presence of a higher price option which acts as an anchor, making the other drinks seem relatively cheaper. If I originally thought £2.50 was expensive for a soft drink, seeing £20.00 at the st...