With the help of a supply and demand diagram explain why the Scottish government may set a minimum price on alcohol above equilibrium?-To get more money? -Stop people drinking?

Asked on by abel09

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Of the two answers, the most likely is that the government has done this to encourage people to drink less.  The reason for this is that price floors tend to lead to a surplus of a given product.

When the price is set above equilibrium (as seen here), there will be a lower quantity demanded than there would be at equilibrium.  Because the quantity demanded is lower, the government is likely to get less tax revenue from the alcohol that is sold.  Therefore, it is not likely that the government is imposing this price floor as a way to get more revenue.  More likely, it is doing so in an effort to reduce the quantity of alcohol that is demanded and consumed.


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