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An Example
Article
See below an article and commentary on alcohol sales in Russia.
http://global.nytimes.com/
Published: July 20, 2011
Russian Law to Restrict Beer Sales
MOSCOW — The slow but steady gain of beer over vodka as the drink of choice
among Russians suffered a setback on Wednesday when President Dmitri A.
Medvedev signed a law restricting beer sales outdoors and late at night.
In the last decade, as Russians’ incomes have risen, brewers have earned
remarkable profits despite the rising taxes on beer. The new law could
particularly harm the Carlsberg Group of Denmark, the leading beer seller in
Russia with about 40 percent of the market. It sells Tuborg, Carlsberg and some
local brands.
Part of the success with sales was because of the widespread availability of beer in
Russia and the police’s tolerance of drinking in parks and on the subway, unlike
more regulated markets outside Russia.
The new law, which will take effect in 2013, will restrict sales from 11 p.m. to 8
a.m. It comes after similar regulations for vodka.
The law also prohibits sales from sidewalk kiosks and at train stations. That could
be a problem for brewers, as about 30 percent of beer sales now come from these
sites.
In a sign of the growing importance of the Russian beer market, shares in
Carlsberg dropped sharply this month when the law appeared likely to pass in
Parliament.
Until the new rules take effect, Russian regulation will continue to favor beer over
vodka as a more healthful alternative. The laws combined with changing lifestyles
in Russia have helped beer in the marketplace.
Russians still drink slightly more vodka than beer. Russian regulators say the
average consumer drank about 12.5 liters of alcohol last year, with beer
accounting for about four liters and vodka more than five liters, according to
Bloomberg News.
IA Commentary
This article is about restrictions put on the sale of beer in Russia. Beer is seen as a
demerit good; a good which has negative effects and tends to be overproduced or
overconsumed. The over consumption of beer (alcohol) by people may have bad
effects on their health. Also the effects of overconsumption may affect other
people who do not actually drink the beer. This is an example of market failure,
where the market fails to allocate resources efficiently. Resources are the factors
of production, namely land, labour, capital and management.
Beer has negative externalities of consumption, meaning that a third party is
affected by the overconsumption of beer, over and above the actual consumer or
producer.
Cost/benefit of beer
Diagram showing negative
externalities of beer
MSC=MPC
P
Deadweight loss
MSB MPB
O
Q
Quantity of beer
In the diagram above the marginal private benefit (the extra benefit gained by
consuming an extra beer to the drinker, is greater than the marginal social
benefit. Marginal social benefit does not equate with marginal social cost and
thus there is market failure; the socially optimum level of beer is not being
consumed.
In Russia the most popular alcoholic drink has been vodka for many years, but,
presumably because of information through education and ‘history’ of the
detrimental effects on health of the drinkers being more available, the less
harmful and apparently cheaper beer has now become very popular. In order to
decrease the negative externalities of alcohol, the government is trying to
decrease the demand for beer, by restricting hours when it can be purchased.
They could have imposed a greater tax on it, to try to decrease demand perhaps,
but as beer is not very expensive this may not have had a great effect. Also the
demand for alcohol tends to be rather price inelastic. Elasticity of demand
measures the degree of responsiveness of the quantity demanded when there is a
change in price. If the proportionate change in quantity demanded is less than the
change in price of a good it is said to have inelastic demand. Alcohol tends to be
rather ‘addictive’ and also for some alcoholic drinks, such as beer, doesn’t take up
a great proportion of a consumer’s income. Thus a greater tax imposed upon the
beer may have had little effect on the market demand. However, it could have
raised a good amount of tax revenue for the government. As it is, the restrictions
in selling times for beer will not raise revenue but at least it will not be a costly
measure to introduce for the government anyway.
Price of
Diagram showing the effect if a tax
S+tax
was Beer
S
p+tax
a
Gov revenue a+b
p
b
D
0
Quantity of beer
imposed on beer
However, the effect on the sellers (retailers) and producers of beer may be felt
quite a lot. Hopefully it should not cause a great deal of unemployment in the
producers market. Also, if demand for beer does fall and people drink less, the
health of workers and man hours missed from the effects of too much alcohol
may improve.
Diagram showing the
possible fall in demand for
beer
price of
Beer
D1
0
D
quantity demanded of beer
The large consumption of beer, as well as being a market failure and affecting
third parties such as victims of ‘drink driving’ accidents, also affects the resource
of labour. If people are sick from too much drink and take days off from work,
this is a loss of efficiency of this resource. Eventually they may become
chronically sick and will be lost to the workforce completely. Treatment and
hospitalization of these people will be paid for by the government probably and
that is an opportunity cost to the government who could have spent the money on
other things in the economy.
However, restricting hours and locations for the sale of beer may not be as
effective as the government hope. People may decide to buy the beer when the
retailers are open for business and consume later. This may actually cause a rise
in demand for beer as with the restrictions imposed, people stock up and then at
home have stocks of beer where they may be tempted to drink more at one time.
Perhaps the government may be better to increase the taxes on beer even more,
alongside the restrictions on times of selling. Then they will increase government
revenue which may contribute to the costs of the sick.