Monografia

Should beer be considered a negative externality in consumption in Guayaquil?

IB extended essay
Economics



ABSTRACT
I chose to write this extended essay because I found out that beer is considered to be the most harmful negative externality in consumption in Ecuador, especially in Guayaquil. The beer industry has to pay 86% of the total percentage of taxes of the alcoholic beverageindustry even though it is the alcoholic drink with the least amount of degree of alcohol. I wanted to prove that beer is not the alcoholic drink that creates the negative externality in consumption, so I came up to this question: should beer be considered a negative externality in consumption in Guayaquil? This extended essay explains the main economic theory related to the consumption of beer inGuayaquil such as the elasticities and negative externality in consumption. After making the surveys and the interview I came to the conclusion that beer is a negative externality in consumption if you drink more than to bottles of 300 ml due to the effect it has, but in Guayaquil people prefer to take other classes of alcoholic beverages with higher contents of alcohol and they are the ones whoare creating the majority of negative externality un consumption in Guayaquil. Therefore, it is not fair that the beer industry is covering negative externalities in consumption in taxes due to other alcoholic drinks.

ACKNOWLEDGEMENTS

I will like to thank all the people that were supporting me throughout the process of elaborating this extended essay:
To my Economics teacher who have taughtme everything that I know of the subject. She has given me an incredible support and as well the necessary guides to end the process of elaborating the extended essay.
To my mom and dad because they were always available to help me while I needed to be somewhere or needed to do something.
To Santiago Trejo, Director of Corporate Affairs of SABMiller, who looked for time in order to give me anexcellent and explicit interview.
To Andres Wu who has supported me through the whole process and as well being there cheering me up to finish it.

CONTENTS

Introduction……………………………………………………………………………...5
Chapter 1. The market in Ecuador
* Section 1.1. Alcohol Market in Ecuador………………..………………..6-7
* Section 1.2. Alcohol Market in Guayaquil…………………………………7
* Section 1.3. Beer Marketin Guayaquil…………………………………….8
Chapter 2. Beer elasticities
* Section 2.1. Price Elasticity of Demand………………….…………….9-10
* Section 2.2. Cross Elasticity of Demand………………………………….10
* Section 2.3. Income Elasticity of Demand…………………………….10-11
Chapter 3. Externality
* Section 3.1. Negative Externality in Consumption…………………....12-14
Conclusion……………………………………………………………………………..15Bibliography………………………………………………………………………...16-17
Appendix……………………………………………………………………………18-19

INTRODUCTION
Beer was first made in Ecuador in 1887 by the multinational SABMiller. It is said that the Ecuadorian beer has a reputation of being one of the most delicious beers in the world. Thanks to the carbon dioxide it contains it has a refreshing feeling once you consume it and by the presence of alcoholand phenolic components, the beer does not get contaminated with pathogenic elements. As well, due to the bitter substances of the hops it stimulates the hunger and facilitates the digestion. Beer is an alcoholic drink of low content of alcohol as it only has 4.2 degrees of alcohol. Most of the people that I know that consume beer once in a while usually drink it only as a refreshing drink andmaximum two to three bottles. But, the government claims that the beer as it is the most consumed alcoholic drink in Ecuador must be the one causing the majority of negative externalities in consumption.
After analyzing the data obtained from the alcoholic drink market in Ecuador, I realized that the beer industry only has a 35% of the market share and the other 65% of the market share goes to other...