ACJC_H1_ECONS_P1_Qn3

3 (a) Explain the demand and supply factors that affect the price of alcohol. [10] (b) Discuss the view that governments should ban the consumption of alcohol. [15] a) Explain the demand and supply factors that affect the price of alcohol. [10] Suggested Approach Introduction  Acknowledge that prices are determined by forces of demand and supply  Identify the possible demand and supply factors that could affect the price of alcohol  Different types of alcohol i.e wine, beer, hard liquor Body (STUDENTS SHOULD SELECT THE MORE APPROPRIATE FACTORS WHICH ARE APPLICABLE TO ALCOHOL) Demand factors a) Taste & preferences  Due to strong marketing efforts and innovative marketing campaigns to promote the consumption of various alcoholic drinks, this has resulted in an increase in demand for alcohol.  For e.g in 2016, leading players such as Asia Pacific Breweries Ltd launched innova tive marketing campaigns to create excitement amongst consumers, tapping into the use of culture and food pairing. For instance, Tiger beer conducted a marketing campaign entitled uncagestreetfood to celebrate the local street food culture. Through a serie s of hawker dining events, consumers were able to pair their local food with the brand. This has resulted in an increase in demand for alcohol. b) Household income  Due to growing affluence, more people are willing and able to spend more on luxury items such as wine, thus resulting in an increase in demand for alcohol. However, for alcoholic drinks such as beer could be seen as an inferior good. Hence when there is an increase in income, there will be a fall in demand for beer.  Likewise, when there is poor economic outlook, consumers show more discretion in their spending and cut down on their demand for alcohol such as wine.  For e.g there is a slowdown in growth in t otal volume of alcoholic drinks sold in Singapore 2016 due to pessimistic consumer sentiments. Supply factors a) Government policy  Due to government policy such as taxes on alcohol producers, this has increased their cost of production thus causing supply to decrease. This is seen in Singapore where it raised excise duties on alcohol by 25%.

b) Increase in number of producers  Due to lower barriers to entry into the market for alcohol due to new distribution channels such as online shopping, this has led to an increase in supply of alcohol as these products are becoming more readily accessible to consumers. For instance, the num ber of internet wine retailers such as Vinomofo is increasing due to the lower set -up and operating cost. Moreover, internet retailers are importi ng a wider range of wine brands, thus increasing supply of alcohol. Putting supply and demand factors together  In terms of supply, the implementation of a large amount of taxes is likely to outweigh the entry of new producers, causing supply for alcohol to decrease.  Hence the increase in demand and de