COMMENTARY 1

Title of the article: Alcohol deaths in Scotland fall 10% in first year of minimum pricing

Source of the Article: Alcohol deaths in Scotland fall 10% in first year of minimum pricing |

HeraldScotland

Date of article: 25th November 2020

Date the commentary was written: 14th January, 2021

Section of the syllabus: Microeconomics

Key concept: Economic Well-being

Word count: 800

Alcohol deaths in Scotland fall 10% in first year of minimum pricing | HeraldScotland

Alcohol deaths in Scotland fall 10% in first

year of minimum pricing

By Helen McArdle @HMcardleHT

Health Correspondent
Alcohol-specific deaths fell to 1,020 in 2019, the first full year of data since minimum pricing came into
effect

30 comments

NEW figures reveal a “notable fall” in the number of people dying in Scotland as a direct
result of alcohol consumption for the first time in seven years.

Statistics from the National Records of Scotland show that there were 1,020
alcohol-specific deaths in 2019, down from 1,136 in the previous year.
Pete Whitehouse, director of Statistical Services said: “Since our records began in 1979,
there have only been three other occasions where we have seen a reduction in the number
of alcohol-specific deaths of around 10 per cent or more in a single year.

“However, although an annual decrease of this magnitude is notable, further data will be
required to see if this reduction continues and whether we will see a sustained shift in
alcohol-specific deaths in Scotland.”

Experts cautioned that while the decline was encouraging, it was largely due to a drop in
deaths from liver disease.

A spokeswoman for Scottish Health Action on Alcohol Problems (SHAAP), an umbrella

body for medics and public health experts in the the field, said: “We are cognisant that the
alcohol-specific deaths definition does not include deaths where alcohol is known to be a
contributory factor - such as deaths due to cancer, suicide and road accidents.

“There is therefore still much work to be done to continue reducing alcohol-related harm
and mortality in Scotland, which remains high.”
Direct alcohol deaths are nearly three times higher than they were in 1979, when 389
were recorded, but experts believe we are already seeing the impact of minimum pricing.

The policy came into effect in Scotland in April 2018, setting a threshold of 50 pence per
unit of alcohol which triggered significant price hikes on high-strength products such as
white cider.

Dr Peter Rice, chair of SHAAP and a former consultant psychiatrist in NHS Tayside’s
Alcohol Problems Service, said: “Although it takes many years to develop liver disease,
whether or not you die depends on your drinking in the last year.

“Often people won’t have symptoms until late and then become very ill, very quickly. We
think what minimum pricing will have done is that people who were at risk without
knowing it will have been moved away from becoming ill as a result of their
consumption reducing.

“There’s quite a lot of research going on into this in Scotland right now, but the Sheffield
University modelling - which got a fair amount of criticism, particularly from the
industry - predicted that there would be a fall in the first year that minimum unit pricing
was in operation.

“They estimated about 60 fewer deaths, so on that they’ve done not badly. So it’s not
unexpected to see an initial fall [in alcohol-specific deaths] but we would expect even
bigger decreases in years two and three.”

Dr Rice added that it would be vital to review the 50 pence threshold, and said he would
like to see the cost per unit increase.

READ MORE: Minimum pricing sees alcohol consumption fall

Prior to MUP, alcohol-specific death rates among men in Scotland were twice as high
compared to men in England and Wales, and 55% higher for females.

There has recently been evidence of changes in consumption between the two nations,
however. In 2018, 9.9 litres of pure alcohol were sold per adult in Scotland - the lowest
since 1994.

The volume of pure alcohol sold per head in Scotland in 2018 was still 9% higher than in
England & Wales, but the gap was narrowing as alcohol sales grew in England and Wales
but fell in Scotland - driven by a decline in off-trade purchases.

This is the first full year of data that on alcohol-specific death has become available since
MUP was introduced.

BMA Scotland chair Dr Lewis Morrison said the figures were “moving in the right
direction” in terms of changing Scotland’s relationship with alcohol.

“We know there is still work to be done but this is very encouraging for minimum unit
pricing’s long-term strategy.

"The aim of minimum unit pricing was to change our country’s relationship with alcohol
in the long-term and for generations to come, and these figures indicate that a better
future for the nation’s health is achievable.”

Alison Douglas, chief executive of Alcohol Focus Scotland, said: “The evidence from the
evaluation of MUP so far has shown that it is having the intended effect on alcohol
consumption, and now it looks like we may be beginning to see this translate into health
benefits.”

However Ms Douglas stressed that the changes were “within the normal range of
fluctuation”, and other measures such as marketing restrictions should be considered.
She added: “That’s why the full and robust evaluation of MUP by Public Health Scotland
is so important as it will provide detail on the impact of the policy over a longer
timescale.

"MUP alone was never expected to solve Scotland’s alcohol problem. There’s still much
more we can do to tackle alcohol harm.”
Commentary

The well being of the people in Scotland has been negatively impacted by the excessive

consumption of alcohol, leading to the government imposing a minimum pricing policy on

alcohol. Minimum price is the legal price set by the Government above market equilibrium price

to increase the price of the product in the market. Like in Scotland, the Government has set the

price control according to the strength of the alcohol which is 50 pence per unit of alcohol. The

main reason for setting this minimum price is to reduce the amount of alcohol consumption and

improve the well being of the people by improving their health. Alcohol is a demerit good which

causes external costs or high amount of negative consumption externality to the society.

Diagram: The effect of Minimum price on Alcohol Market

The socially desirable level of alcohol consumption of Qopt can be determined when MSB(D1)

meets with MSC(S1) at price Popt. This can be achieved when people in Scotland consume a

limited amount of alcohol without any death or healthcare effect due to alcohol, which maintains

the well being of the consumers in the economy. However, without any restrictions the

consumption of alcohol is at Q1 which is the intersection of MPB(D2) and MSC curves.

Overconsumption of alcohol at Q1 level has created a gap between MSB and MSC by the

amount “AB”, which is the external cost to the society. Market is unable to allocate resources at

a socially desirable level and overconsumption at Q1 level has caused welfare loss which is the

loss in social surplus by the amount “ABC” in the market. Increase in demand has also increased

the price of alcohol in the market from Popt to P1.

In order to reduce the amount of welfare loss the Scottish Government has set the price at

Pm(50P) and the shops are not allowed to sell alcoholic drinks below this price. At this price the

demand for alcohol should drop to Q3 but supplies may be incentivised to sell Q2 amount due to

higher price. Theoretically this should create surplus or excess supply of alcohol by the amount

Q2 to Q3. Decrease in consumption of alcohol at Q3 should reduce the amount of external cost

from “AB” to”MN” by reducing the gap between MSB and MSC. The welfare loss should

decrease from “ABC” to “MNC”.

Increase in minimum price by 50 P according to alcohol content has been successful to improve

some well being of the consumers by reducing the level of consumption by “notable fall” in the

number of deaths in Scotland. In the long run the fall in alcohol consumption can improve the

health of the people in the country and improve the productivity and efficiency of the human

laborers in the country. However, the fall in death may not be directly related to the reduction in

alcohol consumption but “due to drop in death from liver disease”. So it is difficult to assess the

impact of this minimum price on alcohol in improving the well-being of the consumers.

The minimum price is according to the strength of the alcohol content like there is “significant

price hikes on high-strength products such as white cider” and increase in price may give the

consumer an option to switch to cheaper alternatives in which the increase in price is lower. This

may keep the level of consumption the same and only reduce the amount of alcohol content.

Additionally the overall demand for alcohol can be considered inelastic in nature as the quantity

demanded responds lesser than the increase in price.

However, an increase in minimum price is helping people to reduce the alcohol consumption

who are present at the risk of serious illness and in the long run may improve the well-being of

the country by successfully reducing the overall alcohol consumption.

According to the chief executive of Alcohol Focus along with the minimum price the

Government of Scotland should focus on other measures like “marketing restrictions”. This can

decrease the popularity of alcohol which may reduce the demand for alcohol in the market.

However, the effect of marketing restrictions may have minimum effect on already addicted

consumers with low price elasticity of demand. It may be successful for young people who are

not regular drinkers by reducing alcohol consumption and improving the well-being in terms of

health and number of deaths.

Overall the effect of this MUP is on the positive side to improve the well-being of the consumers

in Scotland by reducing a significant amount of death. However, it is difficult to establish a direct

relation between the number of deaths and MUP but the result may come in the long run. In

order to improve the well-being and reduce the amount of death which is at present almost twice

as high compared to neighboring states, the Government of Scotland should implement other

policies to discourage consumption.

 COMMENTARY 2

Title of article: Turkey cuts rates aggressively to keep credit flowing in crisis

Source of the Article-Turkey cuts rates aggressively to keep credit flowing in crisis | Reuters

Date of article: 22nd April 2020

Date commentary was written: 14th April, 2021

Section of the syllabus: Macroeconomics

Key concept: Intervention

Word count: 763

Turkey cuts rates aggressively

to keep credit flowing in crisis
PUBLISHED WED, APR 22 202012:38 PM EDT

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KEY POINTS

● Marking its eighth straight rate cut, Turkey’s central bank lowered its benchmark
one-week repo rate from 9.75%.
● The median expectation was for a cut of 50 basis points in a Reuters poll of 18
economists, with predictions ranging between no change and a 100 basis point cut.

Turkish President Recep Tayyip Erdogan attends a news conference in Budapest, Hungary, November 7, 2019.

Bernadett Szabo | Reuters

Turkey’s central bank cut interest rates to 8.75% on Wednesday, risking
further lira weakness, in a bigger-than-expected move aimed at limiting the
economic damage of the coronavirus crisis.

While the central bank acknowledged the depreciating currency, which has
tumbled 15% this year, it stressed the need to keep credit flowing and to
respond to sliding oil prices as it once again cut interest rates by 100 basis
points.

Marking its eighth straight rate cut, Turkey’s central bank lowered its
benchmark one-week repo rate from 9.75%, extending an aggressive easing
cycle that has seen it fall 1,525 basis points in less than a year, beyond most
analyst forecasts.

The median expectation was for a cut of 50 basis points in a Reuters poll of
18 economists, with predictions ranging between no change and a 100 basis
point cut.

The rate cut showed that the bank’s “overriding objective is to support
economic growth and it is willing to make sacrifices on the Turkish lira, as well
as on financial stability and price stability considerations,” said Phoenix Kalen,
director of emerging market strategy at Societe Generale.
The lira hit its weakest level since August 2018 - at the peak of Turkey’s
currency crisis - touching 6.999 to the dollar, or around 0.25% weaker on the
day.

While a weaker lira lifts inflation in import-dependent Turkey, the currency has
outperformed most emerging markets this year.

Turkey, the largest economy in the Middle East, is tilting into its second
recession in less than two years after a surge in cases of the coronavirus.

Ankara has moved to curb its spread by closing schools, bars and cafes, as
well as shutting borders and limiting domestic travel.

The bank’s policy committee said in a statement that fallout from the
coronavirus outbreak has started to hit trade, tourism and domestic demand
so it was “crucial” to ensure markets are functioning and credit is flowing.

Falling global energy prices are lowering inflation expectations in Turkey,

which is almost completely dependent on imports to meet its energy needs, it
added.
Oil prices have tumbled to near two-decade lows due to the economic fallout
from the coronavirus pandemic.

The bank added that inflation would probably fall short of its year-end forecast
of 8.2%, hinting at a revision in next week’s prices report.

‘In a bind’
Inflation hit a 15-year high above 25% during the 2018 crisis. It has since
declined and stood at 11.86% in March, well above the policy rate, meaning
lira depositors face a negative rate of return.

Turkish authorities had exhausted room for monetary easing provided by the
disinflationary impact from oil, Kalen said, adding that surveys showed
longer-term inflation forecasts were increasing.

“Turkey finds itself again in a bind from deeply negative real policy rates,
depleted net reserves, and short-term external debt obligations amounting to
$122 billion,” she said.

The aggressive easing began in July, when President Tayyip Erdogan fired
the bank’s former governor for not following instructions, stoking concerns
about monetary independence.
The Reuters poll showed the policy rate was expected to fall to 8.25% by year
end, with forecasts ranging between 9.75% and 7.75%.

The central bank, which also cut rates by 100 points last month, has ramped
up a bond-buying program to stimulate the economy, including nearly 27
billion lira ($3.64 billion) of government debt - most of it from Turkey’s
unemployment insurance fund - since the end of March
Commentary

The article reflects the intervention taken by the Turkish Central Bank to cut its rate of interest

to increase the supply of money in the economy. The main aim of this intervention with help of

expansionary monetary policy is to “support economic growth” as the economy “tilting into its

second recession” due to pandemic. Central bank in Turkey mainly intervenes through

“aggressive easing policy” by lowering the repo rate which is the rate at which the central Bank

gives loan to the commercial bank and through quantitative easing of “bond-buying program”.

Quantitative easing is a method through which the central bank purchases bonds from the open

market to increase the money supply and encourage people to lend. Central Bank Intervention

will increase the circulation of money in the economy to recover the economy from low growth

rate.

Diagram 1-The effect of increase in Money supply on money market

The rate of interest in the economy is determined where the demand for money Dm and the

supply of money Sm1 meet with each other and determine the rate of interest at R1. At this rate

of the interest the quantity supply of money is Q1 in the market. The intervention made by the

central bank of Turkey with lowering the repo rate and quantitative easing will increase the

supply of money in the economy from Sm1 to Sm2. This will gradually lower the rate of interest

from R1 to R2 (8.75%) and increase the quantity of money in the market from Q1 to Q2.

Intervention like Expansionary monetary policy can encourage consumption and investment

activities in the Turkish economy to recover from the economic downturn caused due to fall in

AD “ hit trade, tourism and domestic demand”

Diagram 2- The effect of Expansionary policy the the economy of Turkey

Lockdown measures and lack of investment has lowered the consumption and investment

activities by restructuring activities in different sectors. This has lowered the AD from AD1 to

AD2 and the real output fell from Y1 to Y2. However, this has stabilized the rate of inflation

which went to 25% before the pandemic and declined from P1 to P2 and “stood at 11.86% in

March”. Increase in money supply by lowering the rate of interest will increase the consumption

and investment activities which may increase the AD from AD2 to AD3. This can increase the

real output from Y2 to Y3 by creating employment opportunities in the economy.

However, one major concern of this expansionary policy is the increase in the rate of inflation by

increasing the price level from P2 to P3. Additionally, lowering the rate of interest may decrease

the value of Turkish Lira which has already depreciated against US$. Low rate of interest,

discourages inward financial investment in Turkey and encourages outward investment. This

brings downward pressure in the currency and brings more inflationary pressure. Since Turkey is

an import dependent country in terms of “energy need”, depreciation due to rate cuts may

increase the import price and increase the chance of costs pushing inflation. However, Falling

global energy prices are lowering inflation expectations in Turkey” and the price level may not

increase in the short run.

The economy of Turkey is already in the edge of recession and output has decreased for a long

time . Central bank’s intervention through a cut in rate of interest may not be a successful

policy. Already the confidence level is low in the economy and further rate cuts may not

encourage economic activities.A cut in interest rates may also result in consumers of the

economy to start saving in foreign countries due to higher rates of return, this will increase the

net income sent abroad, worsening the current account for the economy. Due to already
exhausted reserves, implementing an expansionary monetary policy would force the government

to increase their borrowing from other countries, worsening their government debt situation with

“short-term external debt obligations amounting to $122 billion”. The Central Bank of Turkey is

mainly getting this debt from the unemployment insurance fund, which the government of the

country may need any time. This may decrease Government available funds to send for

unemployment management.

Overall the intervention taken by the central bank of Turkey with quantitative easing may

increase the real output of the economy by increasing the money supply but this will bring other

problems in the economy in terms of decrease in currency value and increase in price level.

Ultimately the main objective of this intervention may not be achieved by increasing the costs of

living due to depreciation of the currency.

 COMMENTARY 3

Title of article: 295% tax on furniture in Canada

Source of the Article- New 295% tariff may cause furniture prices to skyrocket in Canada | News

(dailyhive.com)

Date of article: 31 March 2021

Date commentary was written: 14th February 2022

Section of the syllabus: Global Economics

Key concept: Efficiency

Word count: 799

New 295% tariff may cause furniture prices to skyrocket in

Canada

Huge new tariffs have been applied country-wide to upholstered furniture from

China and Vietnam sold in Canada.

Effective May 5, provisional tariffs of 295.5 percent and 101.5 percent are being

imposed on these imports to “offset the harmful effects of dumping and

subsidization.”
The Canada Border Services Agency (CBSA) said in an email statement to Daily

Hive that “investigations into allegations of dumped and subsidized imports of

upholstered domestic seating from China and Vietnam were initiated in response to

a formal written complaint filed by Canadian producers of like goods.”

“Canadian producers have the legislated right, under the Special Import Measures

Act (SIMA), to be protected from unfairly priced imports, including goods that

have been dumped and/or subsidized.”

Hometown Furniture is a small furniture business with locations in Pentiction,

Kelowna, Chilliwack, and Mission, British Colombia.

Ryan Kandola, manager of the Hometown Furniture in Chilliwack, said they have

been impacted by this change.

Hometown Furniture has told customers that their container has been cancelled,

and they can either receive their money back or exchange their order for another

product.

“What someone was buying for, let’s say $1,700, they are going to be buying for

$6,000 now,” he said.

Kandola said he heard about the tariffs back in February, but assumed it would be

about 15 or 30 percent, “similar to what Trump did to China.”

He stated that a lower tariff increase like that would have been more manageable,

but what the CBSA has imposed is “infeasible.”

“No one thought it was going to be so high…in the span of about a week, our costs

have gone up three, four times on some products.”

Small business owners have already been struggling during the pandemic, and this

sudden change gave them no time in advance to prepare.

“Any product that was shipped out, that’s currently on the water, or just about to

come into port, is going to be hit with that new tariff. Even if you had no idea it

was gonna happen,” Kandola said.

Many companies are moving their plants from Vietnam and China to countries like

Cambodia and Malaysia, where they do not have tariffs imposed. However, it has

still been difficult to bring in consumers with this change.

Kandola said that most of their customers want to support local businesses, but

their budget does determine what they are buying, and this change is making that

difficult.

The CBSA said that their investigations are continuing, and a final decision

regarding dumping and subsidizing will be made by August 3, 2021.

Kandola said that he hopes the CBSA re-evaluates this and comes up with a more

reasonable number.

“It’s unsustainable because with everything else increasing, and not the ability to

get any product from our Canadian providers, this is going to be a disaster for

people.”
Commentary 3

Tariffs are a trade protection measure employed by economics which are used to increase the

cost of importing the product. The Canadian government has set the tariffs to 295% and 101.5%

for upholstered Chinese and Vietnamese furniture as a measure to protect the domestic market

from anti dumping. Dumping occurs when a country exports its products to a country at a price

lower than the average market price. The dumping of the Chinese and Vietnamese furniture in

Canadian markets hardens the competition for the Canadian furniture producers due to the low

prices of the imported furniture. In order to sell the product at below market equilibrium these

two countries may have subsidized domestic firms to export to other countries.

Increase in tariff may impact the economic efficiency in allocation of resources by increasing the

price of the furniture in the market. However, in case of dumping the increase in tariff may

improve the economic efficiency by discouraging unfair practices.

Canada can import furniture at price P(C+V) from China and Vietnam under free trade without

any tariff with supply S(C+V) to meet the domestic demand of Canada. The amount of imports is

Q1 to Q4 under free trade. Increase in tariff by almost 295% will increase the price of imported

furniture in Canada to P(C+V)+T1 and supply can decrease at S(C+V)+T1. This may lower the

demand for furniture from Q4 to Q3 and the domestic production can increase from Q1 to Q2. So

the level of import decreases to Q2 to Q3 in the Canadian market.

This increase in tariff will negatively impact the Canadian consumers as they will pay higher

price P(C+V)+T1 and able to buy lesser quantity of furniture in the market to Q3. Most of the

end consumers in Canada buy furniture from the local shops which mainly sell imported

furniture from other countries. So the increase in tariff will impact the revenue of these firms

who sell imported furniture from China and Vietnam and impact their revenue. Many small

businesses are already suffering from huge losses due to restrictions from covid 19 and increase
in tariff may further create problems for them in terms of loss in revenue. Consumer surplus will

fall from the area “MNGHIJ” to “MN” due to higher price and lesser quantity available in the

market. Many companies are trying to divert the import to other country but consumer’s

preference for imported furniture from China and Vietnam seems inelastic in nature may be due

to quality “it has still been difficult to bring in consumers with this change” In the short run the

demand may respond lesser than the increase in price and increases the expenditure of the

consumers. However, in the long run when the companies will switch to other countries for

importing furniture at lower price consumer may shift their preference. Regressive tax like tariffs

will take a greater proportion of the income from low income consumers, which may worsen the

domestic income distribution in Canada mainly by impacting small furniture sellers.

The revenue of domestic producers will increase from the area “k” to “KG” as they may get

higher prices and sell more quantities. However, domestic producers in Canada are not efficient

in the production of furniture and mostly import from other countries. The Canadian Government

can get some amount of revenue represented by the area “I” due to the increase in tariff. Overall

there will be welfare loss, loss in the consumer and producer surplus in the society by the amount

“H+J”.

If China and Vietnam are dumping furniture in Canada by subsidizing their producers then the

tariff is justified. However, the amount of tariff is very high and consumers and furniture

importers in Canada will suffer because of that. This will lead to inefficient allocation of

resources globally as the furniture price will increase in the market. Canada should properly

investigate the matter of dumping before implementing tariffs of such a high percentage. Small

businesses in Canada have already suffered due to pandemic and fall in sales due to increase in
tariff may force some of them to shut down. This will have a series of consequences like job loss

and impact on standard of living.

In terms of world trade it is very important that countries all over the world should specialize and

trade the product in order to allocate the resources efficiently. Higher tariffs will damage the

trade relationship between Canada with China and Vietnam and may result in a series of

consequences like retaliation, job loss and impact on real output of the economy. Although

Canada is investigating this matter, it should carefully decide the amount of tariff to maintain

efficiency in allocating resources for the betterment of the country.