Economic studies of alcohol demand focus mainly on the effects of price on alcohol consumption. To describe the sensitivity of consumption to changes in monetary price, economists frequently refer to the price elasticity of demand2 (i.e., the percentage change in consumption resulting from a 1-percent increase in price). For example, a price elasticity of alcohol demand of −0.5 means that a 1-percent increase in price would reduce alcohol consumption by 0.5 percent (or a 10-percent increase in price would reduce consumption by 5 percent). An extensive review of the economic literature on alcohol demand concluded that based on studies using aggregate data (i.e., data that report the amount of alcohol consumed by large groups of people), the price elasticities of demand for beer, wine, and distilled spirits are −0.3, −1.0, and −1.5, respectively (Leung and Phelps 1993).3 These estimates suggest that beer consumption is relatively insensitive to price changes, whereas demand for wine and distilled spirits is very responsive to price.
