Discuss economic arguments for and against imposing substantially :: Economics

Discuss economic arguments for and against imposing substantiallyhigher taxes on sale of alcohol.Governments interfere in markets and their working with the primarypurpose of planning of public assistance to people and preventing marketfailure.There are many methods of intervention such as- taxes and subsidies- buffer stocks- applying maximum and minimum prices- provision of public goods and services- provision of education and training- legislation and market reformsApplying taxes has deuce purposes to generate revenue for thegovernment and to discourage consumption and output of certain goods,usually demerit goods. faulting goods are those goods that are usually over consumed by in amarket system, and have social costs exceeding social benefit ascribable tohigh negative externalities. They contrast merit goods which aredesirable for the welfare of society, as irrefutable externalities exceednegative externalities.Taxes out on goods such as alcohol are considered indirect taxes .Depending upon the price elasticity of a good, and its demand andmarket price, government places either- specific taxes that are of a specific number, e.g. 10 dirhams on every bottle of beer- ad valorem taxes that add a percentage of the market price onto taxes e.g. 5% of price of beerA government must crumble the effects of taxing, or increasingtaxation on a good, whether or not the taxation satisfies the goals.The Social costs of alcohol involve the cost of production, cost ofpurchase and negative externalities such as alcohol poisoning anddrunken driving deaths and violence.The social benefits are the profit made by producers, the utilitygained by consumers and externalities such as prevention of heartdiseases.The imposing of substantially higher taxes on the sale of alcohol maybe good in two waysFirstly, alcohol is regarded as a habit forming good. Hence it may beassumed that either it disobeys the law of demand (quantity demandedof a good is in return proportional to chang e in price, all otherfactors remaining constant), or it is price inelastic (a percentagechange in price causes a littler percentage change in quantitydemanded). Although imposition of taxes will increase the market priceof alcohol, the change in demand would be substantially lower. wherefore the government would gain revenue, which it may use forprovision of welfare.Secondly, alcohol is a demerit good. It has private benefits as anindustry, and it provides utility and satisfaction to consumers. Itspositive externalities include trim back coronary diseases, andproviding amusement to others in social events. However, its negativeexternalities include addiction, drunken driving accidents and fightswhich result in property damage, and provide a burden to society. Itspositive externality of preventing coronary diseases arises only from