Alcohol+tax+will+save+lives,+fund+needed+services+-+Shinyoung+Erika+Park

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** Alcohol tax will save lives, fund needed services **  •  http://www.baltimoresun.com/news/opinion/readersrespond/bs-ed-alcohol-tax-20110511,0,5180917.story  The Baltimore Sun // 7:30 a.m. EDT, May 11, 2011 //  Maryland is currently planning to sign the alcohol-specific-tax-increase bill. This is because alcohol is a paradigm of negative externality of consumption. When people consume alcohol, they loose their consciousness and judgment abilities. Thus, they would cause harm to other people: causing accidents by driving drunk and provoking crime and violence. Considering the psychological and monetary cost in repairing those damages, it is evident that Marginal Social benefit is less than Marginal private benefit of the alcohol consumer. As consumption of alcohol brings harm to the third party, alcohol can be categorized of creating negative externality of consumption. In order to internalize the negative externality, amount of alcohol consumed must be decreased. Accordingly, Maryland is planning to increase taxes on alcohol so the supply curve (marginal social cost) would shift to the left. This would lead to a decrease in amount of alcohol demanded (Q1- Q2) and an increase in price of alcohol (P1 – P3). If the right amount of tax were imposed on alcohol, the decreased amount of alcohol demanded would be same as the socially efficient output of alcohol; yet the price would be significantly higher. As it is mentioned in the article, Maryland is expecting “ 2 percent decrease in alcohol consumption and prevent 14 deaths, 125 cases of aggravated assault, 26 incidents of severe violence against children, and close to 6,000 cases of [|**alcohol abuse**] or dependence every year” or in other words, internalization of the negative externality. Market Failure : A given market situation when allocation of good and services are not provided or consumed in the optimal amount. Externalities: A cost that a third party has to pay, even though it is not engaged in the act of production or consumption of the good or service Internalization of Externalities : Shifting the private marginal benefit so that it would be equal to that of the marginal social benefit. Marginal Social Cost: The total cost of the society when producing a unit of good or service. (MSC) Marginal Private Cost: The private cost for the company when producing a unit of good or service (MPC) Marginal Social Benefit: The total benefit of the society when consuming a unit of good or service (MSB)  Socially efficient output : output of an product when MSB = MPB Negative Externality of Consumption: The consumption of a good or service creates a negative externality to a third party ; MPB is greater than MSB The alcohol-specific-tax-increase bill is quite efficient in many ways. Through collecting additional tax, the government will be able to gather more revenue. This revenue could be used to correct the negative externalities caused by drinking; moreover the revenue can be used to aid in different factors such as improvement of education and health care system. As a matter of fact, “ the legislation specifically commits $15 million to help reduce the waiting list for people with developmental disabilities who desperately need community services. The governor also used a supplemental budget to put millions of dollars into critical [|**mental health**] needs.” Moreover, the “rest of the new revenue will go to important public education needs such as school construction in this first year.” Likewise, the revenue collected from alcohol tax would improve the life of the citizens in many ways. “ Likewise the additional revenue collected can profit the whole state in many ways. However, one of the problems of this bill is that it might lead to an appearance of ‘black market’ of alcohol. If the taxes are high and alcohol prices are extreme, people in Maryland would go to other states in America and purchase alcohol. This might hurt the alcohol suppliers in Maryland. In addition, by passing this bill, the governor of Maryland has to risk his political position, since alcoholics might oppose to the bill and not vote for the governor for the next election. An alternative solution is educating people about moderate drinking: decreasing amount of alcohol consumed, by shifting demand curve to the left.