ECON8069 | Business Economics | Rate of Beer Consumption in Australia

Market for Beer

According to a report by Armstrong (2018), majority of the European countries and USA consume more beer than the Australians. Czech Republic tops the list of highest beer consuming county in the world. As seen in the following chart, in 2017, the revenue from the sales of beer per capita in Czech Republic was 137.38 liters and that in Australia was only 71.82 liters. Australia ranks 13^th in this list.

Figure 1: Beer Sales per capita in 2017 (in liters)

(Source: Armstrong 2018)

Both the countries have a long history of beer consumption and they still carry on the tradition. However, the level of beer consumption is significantly higher in Czech compared to that in Australia because of the beer drinking culture and availability of cheaper alcohol in Czech.

Secondary data on the sales of the beer would reflect the differences in the beer consumption among two countries, as seen above. The chart on the sales data is effective for a visual representation of the comparison between two countries. Hence, secondary data on the beer consumption comparison should be collected from an authentic website to fulfill the objective of effective comparison.

2. The difference between the beer consumption between Australia and Czech Republic can be attributed to the following factors.

Cheaper beer in Czech: the price of beer is extremely cheap in Czech than in Australia. According to Numbeo.com (2018), a 0.5 liter draught of domestic beer costs around 7 AUD in Australia while it costs around 1.88 AUD in Czech Republic. Thus, there is a price difference of almost 73.16% for beer in Czech and Australia. Similarly, for 0.33 liter bottle of imported beer costs 8 AUD in Australia while 2.51 AUD in Czech, with a price difference of 68.96%. Beer is relatively much cheaper in Czech than in Australia due to higher production.

Culture: Czech Republic acknowledges historical significance of beer as a part of their culture. They consider beer drinking as a part of their lifestyle. The Czech beer is one of the finest quality beers in the world. It is found that, the Czech women feel that drinking less beer is a matter of shame to their culture (Scott 2013). According to them, beer has many benefits, such as, keeping the kidneys healthy, reducing blood pressure, good skin, stronger bones, reducing risk of heart attack and cancer (Jirasova 2016). On the other hand, the Australians are also a beer drinking nation. However, the trend has been changing towards wine drinking. People’s tastes and preferences are changing, based on income level, and health awareness.

Health issues: the Australians are becoming more and more concerned about their health issues and hence, the overall alcohol consumption is falling. They feel wine is better for health and thus, wine consumption has increased significantly (Germov and McIntyre 2013). However, there is no such issue regarding beer consumption in Czech and the finest quality beer is produced there, leading to a rise in the beer consumption (Groundwater 2017).

3. Price elasticity of demand explains the percentage change in the demand for one unit of a product or service due to one percentage change in its price (Varian 2014). Beer is a normal good and not a luxury good in Australia. Drinking beer is a part of their tradition and culture and hence, people are mostly price insensitive for beer. Thus, demand elasticity for beer is relatively price inelastic, that is, one percentage change in its price does not affect the demand for beer significantly in the Australian market.

Figure 2:  Relatively inelastic demand curve for beer in Australia

As seen from the above diagram, due to relatively inelastic demand curve for beer in Australia, one unit of price rise led to a very small decline in the quantity demanded for beer.

4.

Figure 3: Impact of excise tax on beer consumption in Australia

Excise tax is an indirect tax that is levied on the manufactured goods. The price of the product generally includes the excise tax (Cowell 2018). As seen from the above diagram, due to the imposition of excise tax on beer, the supply curve shifts leftward, from S1 to St. Before the excise tax, the market equilibrium was at B, corresponding to the price P1 and quantity Q1. After the imposition of the tax, the price for beer increases by the amount of tax. Pt is the new tax inclusive market price for beer. As Pt is higher than P1, the demand for beer falls and the new equilibrium is reached at A, which corresponds to quantity Q2. However, the producers get the price P2 and the difference between Pt and P2 is the tax revenue, earned by the government. Thus, imposition of an excise tax on beer leads to a rise in the market price for beer and fall in demand.

5. Cost benefit analysis is a method to compare the costs of a particular action or decision in the business with the benefits of the same (Ferwerda 2014). The side which outweighs the other is accepted as the final decision. The Australian government wants to reduce the beer consumption in the society. Thus, before imposing any tax or implementing pricing policy, the government will conduct a cost benefit analysis of the measure. Beer consumption has costs such as, health cost, crime costs, workplace costs and welfare implications. On the other hand, the benefits are enjoyed by the beer producing companies and stakeholders, customers deriving pleasure from drinking, and economical gains from the industry, such as, employment, import and export, revenue from the hospitality industry etc. (Hursh and Roma 2016). The government compares the implementation costs of the policies along with the other social and health costs with the benefits from beer production and consumption, using quantitative measures. As the costs of beer consumption is higher, in terms of health issues and crimes in the society than the economical gains and policy implementation cost, the Australian government wants to reduce the rate of beer consumption.

6. Over the years, to reduce alcohol consumption, the Australian government introduced various policies, other than taxation. Those are policies regarding regulating physical availability of alcohol, minimum pricing and bans on price discounts and promotional offers. National Alcohol Strategy 2006 - 2011 and 2016 – 2021, National Binge Drinking Strategy, Danny Green’s Coward Punch Campaign, Good Sports Programme, Hello Sunday Morning are few effective policies, other than taxation, implemented by the Australian government to reduce alcohol consumption (Carragher and Chalmers 2011). Other than these, the government imposed minimum pricing, restrictions of availability of alcohol by imposing ban on sales, minimum legal purchase age, restricted density of outlets, and on hours of sale, and ban on drinking in public places, ban on discounts and promotions, restrictions on licenses and campaigning against the disadvantages of alcohol consumption (Howard, Gordon and Jones 2014). These policies have been successful as those reduced the rate of alcohol as well as beer consumption in Australia.

Labor market

1. Real wage refers to the wage that is adjusted for price rise in the economy, that is, inflation. Hence, real wage growth refers to the growth in the wage, which is adjusted for inflation (Varian 2014). Real wage growth helps in understanding the changes in the standard of living. This is different from nominal wage, which represents the face value of the wage which also includes the effect of inflation. Real wage growth measures the changes in the purchasing power of money (Shimer 2017). It is possible that when nominal wage growth is positive but the real wage growth is negative.

2. 

Figure 4: Inflation rate, Australia Vs USA, 2007-2016

(Source: World Bank 2018)

Figure 5: Real minimum wages, Australia Vs USA, 2007 - 2017

(Source: Stats.oecd.org 2018)

It is seen from the above two graphs, that the inflation rate fluctuated more in the USA in the past 10 years, compared to that in Australia. The real minimum wage remained almost stable in Australia within the time period 2007 – 2017. Rate of inflation was negative in 2009 in the USA and thus, the real wage was higher in 2009-2010 in the USA. However, for the past 10 years, the level of real minimum wage was always higher in Australia, compared to USA.

3. The Fair Work Commission of Australia regulates the minimum wage in the country by applying the Fair Work Act 2009. The Australian National Minimum wage represents the minimum basic pay to the workers for ordinary working hours. The minimum wage law presents the minimum level of wage for employees, except for agreements and awards. The wages are set for a regular employee, trainees, junior employees, apprentices, disabled employees, and casual loading. The current minimum wage before tax is AUD 18.93 per hour or AUD 719.20 per 38 hour week (Fairwork.gov.au 2018).

4. Increase in minimum wage increases the disposable income of the workers. Thus, purchasing power of a worker increases. He is now able to spend more money, contributing in the increase in aggregate demand in the economy. This also contributes in inflation in the economy. The intention of leaving the job reduces, leading to more job satisfaction and motivation and more productivity. On the other hand, if the employer has a restricted budget and minimum wage is increased, he might opt for a lay off if he cannot compensate the same number of employees at higher wage. In that case, a worker might be unemployed, which is a negative impact of rise in minimum wage.

References

Armstrong, M., 2018. Infographic: The Countries Drinking the Most Beer. [online] Statista Infographics. Available at: https://www.statista.com/chart/12510/the-countries-drinking-the-most-beer/ [Accessed 3 Sep. 2018].

Carragher, N. and Chalmers, J., 2011. What are the options? pricing and taxation policy reforms to redress excessive alcohol consumption and related harms in Australia. [online] Bocsar.nsw.gov.au. Available at: https://www.bocsar.nsw.gov.au/Documents/r59a.pdf [Accessed 3 Sep. 2018].

Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.

Fairwork.gov.au, 2018. Minimum wages. [online] Fair Work Ombudsman. Available at: https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/minimum-workplace-entitlements/minimum-wages [Accessed 3 Sep. 2018].

Ferwerda, J., 2014. Cost-benefit analysis. Chapters, pp.1-1.

Germov, J. and McIntyre, J., 2013. The rise of Australia as a wine nation. [online] The Conversation. Available at: https://theconversation.com/the-rise-of-australia-as-a-wine-nation-14875 [Accessed 3 Sep. 2018].

Groundwater, B., 2017. Nine countries that like a drink even more than Aussies do. [online] Traveller. Available at: https://www.traveller.com.au/countries-that-enjoy-drinking-alcohol-even-more-than-australia-gv2ngo [Accessed 3 Sep. 2018].

Howard, S., Gordon, R. and Jones, S. (2014). Australian alcohol policy 2001–2013 and implications for public health. BMC Public Health, [online] 14(1). Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4155079/ [Accessed 3 Sep. 2018].

Hursh, S.R. and Roma, P.G., 2016. Behavioral economics and the analysis of consumption and choice. Managerial and Decision Economics, 37(4-5), pp.224-238.

Jirasova, R., 2016. TOP 20 beer drinking countries. [online] BFT Blog. Available at: https://blog.businesstripfriend.com/article/top-20-beer-drinking-countries [Accessed 3 Sep. 2018].

Numbeo.com, 2018. Cost Of Living Comparison Between Australia And Czech Republic. [online] Numbeo.com. Available at: https://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=Australia&country2=Czech+Republic [Accessed 3 Sep. 2018].

Radio.cz, 2017. Culture of Beer in the Czech Lands | Radio Prague. [online] Radio Praha. Available at: https://www.radio.cz/en/static/czech-beer/culture [Accessed 3 Sep. 2018].

Scott, R., 2013. The Czech Relationship with Alcohol - Prague, Czech Republic. [online] Expats.cz for Jobs in Prague - Prague Real Estate in the Czech Republic. Available at: https://news.expats.cz/czech-culture/the-czech-relationship-with-alcohol/ [Accessed 3 Sep. 2018].

Shimer, R., 2017. Labor Markets. Journal of Political Economy, 125(6), pp.1834-1840.

Stats.oecd.org, 2018. Real minimum wages. [online] Stats.oecd.org. Available at: https://stats.oecd.org/Index.aspx?DataSetCode=AV_AN_WAGE# [Accessed 3 Sep. 2018].

Varian, H.R., 2014. Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton & Company.

World Bank, 2018. Inflation, consumer prices (annual %) | Data. [online] Data.worldbank.org. Available at: https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG [Accessed 3 Sep. 2018].