After five years of legal dispute, a policy that was initially proposed by the Scottish Government is set to finally become effective in May of 2018. The Scottish National Party introduced a 50 pence minimum unit pricing for alcohol, raising the costs of the cheap, and strong alcohol drinks bought in shops and supermarkets to an artificially set price. Act 2012 was implemented to tackle the toll Scotland’s harmful drinking is taking on the country. This is indicated by the fact that there were 1265 deaths in 2016 due to alcohol. The 50p per unit minimum would raise the cost of a bottle of cheap, red wine (9.4 units of alcohol) to £4.69 and a 700ml bottle of whiskey (28 units of alcohol) to £14. Let us take a look on how the market for alcohol in Scotland will be affected by the minimum unit price.
Assuming that the demand for alcohol in Scotland is inelastic, people are going to be unresponsive at the increased price from 18p per unit to the legally allowable price of 50p. This is due to the addictive nature of alcohol. This explains the steepness of the demand curve compared to the supply curve. A change in price simply causes a movement along the demand and supply curves, without shifting the demand and supply curves themselves. The upward sloping supply curve reflects the positive relationship between quantity supplied and the price.
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As price increases from the market equilibrium price of 18p per unit to minimum unit price of 50p, the quantity offered for sale rises from QE to QS, causing a movement upwards along the curve. With higher priced goods earning the firms more profit, the producers receive the signal to ramp up their production. On the other hand, because of the effect of the law of demand, less alcohol is demanded because customer’s expenditure on alcohol would increase. This is demonstrated by the movement up and left along the demand curve. As price increases from 18p to 50p per unit, the quantity demanded goes from QE to QD.
When supply increases but demand is reduced, the price would naturally drop to PE and the market would clear. However, in this case, the price floor prevents it. At PE, there is no excess supply because the quantity demanded and supplied are equal. At PMIN, however, QS, is greater than QD, creating a surplus in the market. The government of Scotland implemented minimum price to achieve a sustainable overall welfare for the country. The article mentions of many positive consequences, stating that the law “protects human life and health.” This is not wrong as excessive drinking is responsible for 1265 deaths in 2016. However, the article does not mention a surplus if imposed.
As seen above, following the laws of economics, there will be a surplus. It is important that the government has a plan on handling the excess alcohol is a must. Regulations must be made so that the surplus is not sold at a price below the minimum price and contradicting the aim of it. Opposition by the Scotch Whisky Association (SWA) accused that the policy contravened EU law, which stated that it was illegal to set minimum unit price when there are less restrictive methods of procuring the same objectives. The methods, as proposed by SWA, are an excise duty or a VAT increase. To question if minimum price is better, aims and justifications by the Scottish government must be comprehended.
The article mentions that minimum unit pricing “does not breach EU law” because it is a “legitimate means of achieving legitimate aim.” Although if the alternative way, tax or VAT increase is enforced, it will raise tax revenues that can be used for socially serviceable projects, such as campaigns. In addition, it “would be felt across the board.” However, the government’s main target is excessive drinking of strong and cheap alcohol. With a minimum unit price, the stronger the alcohol is, the more expensive it will be. This method would not affect the prices in pubs, restaurants as drinks there are already above 50p. This way, it is not harming responsible and sensible drinkers at a certain extent.
Hence, a minimum unit price would be the most effective way.