Supply and Demand Problems Concerning Ready Mixed Drinks

ECON 101 Essay 2009

"Ready-to-drink (RTDs)" alcopops are fundamentally the mixture of fruit juices or soft drinks with alcoholic beverages. They are sold in a pre-prepared format, making them an effortless choice of alcoholic beverage, as opposed to mixing a drink oneself. The objective of the Australian Government in 2008 was to reduce the quantity of ready-to-drinks (RTDs) being consumed by young Australian, by increasing the tax on alcopops by 70 percent. The Australian Drug Foundation; present at the Standing Committee on Community Affairs of June 2008, expressed their concerns to the matter by concluding that some RTDs "disguise the taste of alcohol more than others, making them easy to drink and appeal to young people". Placing a tax on these RTDs appears to be an ideal starting point for battling underage binge drinking, however, the overall success of the scheme should be based on the impact of the raise in tax; will those who cease to drink RTDs simply move on to straight spirits?

The main reason for increasing the tax on RTDs is to simply try to curb the amount being consumed by the young people of Australia. The theory behind the Australian Government's initiative is simple; raising the tax should shift the supply curve upwards, because of the lower demand. This is clearly shown on Fig. 1 below.

The shift in the supply curve upward will lead to a new equilibrium, with the tax induced higher price and the accompanying lower quantity being consumed. Drug Awareness of New South Wales state; Australia, stated that RTDs are "designed to entice underage drinkers who do not like the taste of alcohol to start drinking as the alcohol taste is masked". This indicates that a possible reason for young Australian's choosing RTDs as a preferred alcoholic beverage being that they...