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Alcohol is categorized as a demerit good. A demerit good can be defined as a product, such as cigarettes, which consumers may overvalue and tend to over consume but which the government believes may be harmful for consumers. Demerit goods are those goods whose negative externalities are very high. First, to be able to analyse whether the government should impose substantially higher levels of taxation on the sale of alcohol, we must determine the effect …

…the 20% heavy drinkers who consume about 85% of the totally alcohol demanded and the producers. In recent surveys conducted in the U.S.A a majority favoured an increase in taxes. In conclusion, although an increase in tax on one of the most taxed consumer products will have an adverse affect on some people, its benefits greatly outweigh any losses causes. Thus, taxes on demerit goods that cause negative externalities like alcohol should be increased substantially.