Assignment Task: Alcohol consumption is enjoyed around the world by literally hundreds of millions for relaxation and socializing. Alcohol is associated with increased risk of traffic accidents as well as higher risk of heart disease, liver disease and cancer.
a) Suppose initially that alcohol is taxed and regulated in the same way as bottled water, fruit juice, and soda. Will the private market, left to its own devices, provide the socially efficient price and quantity of alcohol?
b) What would be the economic justification for a government policy designed to regulate alcohol consumption?
c) Across the world, we observe a variety of regulatory approaches to alcohol, including age restrictions, limited hours and locations for retail sales (often through stores run by the government), and taxes. Which of these approaches is most likely to lead to a socially efficient outcome? Why?