ABSTRACT
This chapter presents estimates of the separate demand functions for beer, spirits and wine in the UK. The specification and method of estimation follow McGuinness, except that separate demand functions for beer, spirits and wine are estimated. The equations are estimated with variables measured in first-difference form, to overcome the high multicollinearity that exists amongst the levels of variables. Beer and spirits consumption are significantly related to real changes in their own prices. Changing the real price of alcoholic drinks would also have a significant indirect effect on the consumption of spirits and wines, by way of changing the value of real income. The results suggest that consumption of spirits and wine would rise during periods of rising real incomes. Economists are used to considering the effects of marginal changes, but control of alcohol consumption may be something that cannot be achieved by marginal changes.
