Answer to Question #148523 in Macroeconomics for Neha

Question

During the recent assembly election in Bihar, many of the women voters who supported CM Nitish Kumar's Prohibition Policy were against him. Is prohibition the most effective policy to deal with alcoholism in society? Evaluate the impact of such policy on the different parties - consumer, government and society, primarily using economic reasoning

Answer 1

Prohibition reduce demand if consumers exhibit respect for the law and at the same time prohibition can increase demand through a tendency for consumer to desire alcohol which has been forbidden to them.

Government has to spend more money to fuel the the war against alcohol. this makes government lose tax revenue forcing it to rely on income tax revenue to fund their budget going forward.

Prohibition creates a vast illegal market for the production, trafficking and sale of alcohol in the society which in turn affect economy negatively since tax revenue and legal jobs will be lost.

Therefore, prohibition is not the most effective policy to deal with alcoholism in society.