1. Suggest how an economist would approach the problem of alcohol abuse. Provide two (2) possible solutions to this problem. Include the four (4) elements of the economic way of thinking in your analysis.
Moore and Scott (2002) note that rising price levels and increasing excise taxes are one effective way of controlling the problem of alcohol abuse. This literature suggests that consumers tend to drink less when prices are high and the availability of alcohol is limited. This conclusion seems obvious if we consider that economists “use assumptions to simplify” problems. When prices are high, no matter what the products, consumers have less to spend and thus consume fewer products. In addition, if we “isolate the variable’ of income, the amount of available income will also be considered as a determining factor in the amount of alcohol consumed. If you have less, you spend less.
A second way economists approach the problem of alcohol abuse is by viewing the issue of health insurance and how insurance rates are directly related to the amount of alcohol consumed. Here, we can consider how economists “think at the margin”. The change in health rates would have to be more than marginal to affect a change in a life style such as alcohol consumption. Similarly, if one thinks rationally, the higher the insurance rates are for alcohol consumers, the less these consumers will drink.
Finally, “rational people respond to incentives”. If insurance companies offer price incentives to drink less, a rational person would respond by drinking less.

Cooksey, J. A., Knapp, K. K., Walton, S. M., & Cultice, J. M. (2002). Challenges To The Pharmacist Profession From Escalating Pharmaceutical Demand. Health Affairs, 21(5), 182.

Cook, P.J., & Moore, M.J. (2002). The Economics of Alcohol Abuse and Alcohol-Control Policies. Health Affairs, 21(2),