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Drinking by Mind Map: Drinking

1. Tax

1.1. The duty rates are standardised at $48 per litre of alcohol for beer, stout, cider and perry, and $70 per litre of alcohol for other types of liquor.

1.1.1. Merits Not too costly. Does not require monitoring of firms' production methods and externality levels. Allows Government to obtain tax revenue, especially on goods that are price inelastic in demand. Easy to implement. Involves punishing the creator of negative externality (rowdy behaviour, etc.) which is seen to be fair, thus it tends to be socially and politically acceptable. Encourages lowering of externality Tax is based on the amount of alcohol and not the volume which reduces negative externalities created by alcohol consumption.

1.1.2. Demerits Alcohol is price inelastic in demand A high tax needs to be imposed to lower the quantity demanded to the socially optimal level. Unintended consequences Sharp increases in market price for alcoholic drinks might encourage illegal production or smuggling of the good. Trade-off with equity Demand of alcohol is more price inelastic than its supply hence the tax burden falls heavier on consumers' side. Only the comparatively more well-off consumers can afford it which creates a new problem of inequity.

1.1.3. Perspectives of stakeholders Bad for stall owners Some stalls depends heavily on the sale of alcoholic drinks for revenue. The tax could hurt their businesses hard.

2. Existing Measures

2.1. Regulation

2.1.1. From 10.30pm to 7am, drinking is banned in all public places and retail shops are also not allowed to sell takeaway alcohol. There are stricter rules in Liquor Control Zones such as Geylang and Little India, where the ban applies from 7am on Saturday to 7am on Mondays. Merits Certainty of Outcome Easy to implement Demerits High Cost Displacement effect of regulation Inefficiency due to policy bluntness

2.2. Moral Suasion

2.2.1. Health promotion board provides singaporeans with information on the long term and short term adverse effects of binge drinking. Merits Less distortion price signals Low cost Demerit Difficulty in changing mindset and behavior

3. Economical Analysis

3.1. Demerit Good

3.1.1. Ignorance Due to imperfect information, people do not know the true cost of consuming alcohol (MSC)

3.1.2. Irrational People know the true cost but they still choose to consume excessively Due to addiction or influence from others

3.2. Negative Externalities

3.2.1. (graph)

3.2.2. Causes Drink driving Affects third parties (other drivers) that is on the same road as drunk drivers as they face the risk of accidents increased due to drunk drivers Increased risk of social unrest Heightened emotions of drunkards cause them to get into fights/ commit crimes. Third parties (residents) faces risk of being beaten up or sexually assaulted. This causes unrest in the country.

3.3. Consumers pursue satisfaction of drinking alcohol and ignore its MEC in their decision making. Thus there is divergence between MPC and MSC.

3.3.1. Results in welfare loss due to overconsumption of alcohol. Market fails to allocate resources efficiently, thus resulted in distortion of rice signals from both sides of the market, causing price mechanism to fail.

4. Evaluation

4.1. Long Run

4.1.1. Tax is the most effective measure as it is the most sustainable since it is a stable source of revenue for the government.

4.2. Overall

4.2.1. Since Singapore is a small country, regulation is the most effective due to the low cost in monitoring. For the best solution to drinking, the government should adopt a multi-pronged approach of all three policies, which is similar to what the government is doing now.

4.3. Short Run

4.3.1. Regulation in the most effective as this measure has a certainty of outcome whilst moral suasion and tax depends on the responsiveness of the consumers to these measures.