Answer to Question #259614 in Microeconomics for Hini

Question

Since 1960, the manufacture, sale, consumption, and storage of alcohol has been illegal in the state of Gujarat, India. Similar bans are in place in some other Indian states as well. Assuming a ban on alcohol is partially effective, draw a diagram to show how it would affect the price of alcohol. Who wins and who loses from such a ban? Consider the effects of the ban on consumers, producers, and society overall.

Answer 1

If a ban on alcohol is partially effective, it means that the prices will raise. This is because the quantity supplied will be reduced.

As shown in the diagram, when supply is reduced, supply curve will shift to the left, raising price from say $P_1$ to $P_2$ .

In such a ban, the producer wins because alcohol will be supplied at a high price.

The consumer losses because he will have to incur more in order to get the same quantity of alcohol.

In the society as a whole, the consumption of alcohol will have generally been controlled. The higher prices will discourage its consumption.