Odupa Donald Opiyo

 Economics [Name] [Student Number] [Tutor’s Name] Introduction Available researches have it that Australians gamble more than their counterparts do in other developed nations. Besides this, another study that was done by Dr Charles Livingstone, Ms Louise Francis, and Ms Maggie Johnson (2017), more than 75% of Australians living in the capital territory suffers from harm related to gambling. The net income that was accrued by community venues that operate the electronic gambling machines in 2014/2015 fiscal year was as high as $167.2 million (Livingstone, Francis, & Johnson, 2017). Australian adult can spend about A$1240 on betting annually, which is to a bigger extent greater when compared to the global figures (Livingstone, 2017). According to a report from Australian Gambling statistics, the total gambling expenses in Australia grew by over 7% from $20 billion in 2014 to $23 billion in 2015. Besides this shocking statistics, per adult gambling cost rose from $ 1,171 to $1,242. The well-known forms of gambling include lottery games, with 28% reporting to using it. Poker machines came in 2nd, with 7% of adults stating that they use pokies on a monthly basis. The addiction brought about by gambling makes most of the habitual gamblers result to illegal activities so that they can be able to repay their debts, maintain appearances, and get extra cash. Gambling addiction affects impacts the lives of between 4 to 9 other people (National Research Council 1999). This implies that about 4 million Australians are affected by gambling problem yearly (Delfabbro and king 2012). People with gambling addiction risk suffering from mental and physical health issues, unable to keep a job, and are unable to sustain relationships. Just about 12 % of people with gambling problem seek assistance (Williams et al., 2011). Based on the research carried out in Victoria, involving volunteers between the ages of 16 and 88, about 20% of them were involved in gambling and they confirmed having problems because of it (Thomas, Randle, et al., 2018). The research further discovered that about one out of every two participants, precisely 40.2% were affected indirectly by burdens connected with gambling. It has been approximated that the social costs of gambling is about A $4.7bn annually (Productivity Commission 2010). This paper is centred on presenting an economic analysis of the consumption of gambling in the country. Overview of Poker Machine Gambling in Australia Supply and demand Economic Theory The analysis of the gambling business has uncovered that perfect competition does not exist in the market. This is chiefly because of the externality theory in which externality alludes to the consequences of production or consumption, which is not taken into account or traded on the market to set the price. Thus, the producers and the consumers are not affected, or they tend to bear the full brunt of their production or consumption respectively (McPake et al., 2008). In the case of gambling, however, the emphasis is on consumption, which tends to yield negative externalities as the problem gamblers in Australia are heavily under its influence. Subsequently, in the case of an occurrence of negative consumption externality, the curve, which represents the social value, tends to be lower than the demand curve (Mankiw and Mankiw 1998). Moreover, the socially optimal quantity has a tendency to be lower than the equilibrium quantity as shown below in figure 1. Figure 1: Negative consumption externality (Mankiw & Mankiw 1998) This social equilibrium can only be present at the point, where the social marginal benefit tends to be equal to private marginal cost. As this is not the case, it results in deadweight welfare loss, which is associated with the overconsumption of gambling as it is illustrated below in figure 2. Figure 2: Welfare loss in negative externality (Pettinger 2017) In light of the presence of negative consumption externalities identified with the high level of gambling, it is essential to create methodologies and initiatives to shift the equilibrium quantity to socially equilibrium quantity. The fact that Australia having many poker machines per person when compared to advanced nation, this means that the demand would be very high. This means that problem gambling in Australia has high social cost. Since the social costs are very high, this implies that the poker machine gambling are a negative externality where MSC is greater than MSB. Ceteris paribus (holding everything else constant) as the expenses of gambling machines raises and the cash that the sellers receive drops, the users and the producer surplus drops. Pigouvian Tax Figure 3: Pigouvian tax Pigouvian tax has been defined as a tax that is imposed by the government on activities, which tend to create negative externalities. This is done to ensure that the private marginal cost equals the social marginal benefit (Amadeo, 2018). Hence, such a tax needs to be imposed on the consumption of poker games so that the market can attain efficiency. The amount of tax will reduce the consumption and will help the market to reach equilibrium point socially. This will be done by increasing the private marginal cost by the amount, which will be the tax to ensure that it reaches the social marginal benefit (Hingriks & Myles, 2013). Overconsumption will be reduced as the demand for gambling will reduce and reach the socially optimal equilibrium. Though this, tax will help in achieving the socially equilibrium position, they are considered to be regressive since it impose more burden on the poor as compared to the rich (Amedeo, 2018). Therefore, the Pigouvian tax can be manipulated not to cause the desired reduction if the gambling world cuts down on their profit. In Figure 3 above, it shows prices have gone up to P1 and Q1. Consequently, the gamblers would be forced compelled to pay the difference. They will therefore pay from Pe to P1. Because of this, the government would have lowered the deadweight loss. Figure 4 below, it exhibits before tax the deadweight was big but because of the introduction of taxes; the deadweight loss is present but has declined by a huge margin. Figure 4: Old and new tax deadweight Quota on Poker Machines The government can also impose a quota on the poker machines, which will improve the economic efficiency, as there will be a reduction of poker machines available in the market (Besanko & Breautigam 2010). This will result in a lower number of poker machines at higher prices. As a result, the negative externality will be reduced since demand will be on the decline. The quota should be set at the socially desirable level of output to limit the supply and ensure that social equilibrium is achieved, in which the marginal social benefit will equal to the marginal private cost. The government would not be keen and interested with Q2. However, this can changed with Q1 and ready to supply, i.e. imports shall be between Q1 and Q 2. In case it desires to market local supplies, it can place quota between q3 and q4. Consequently, between Q1 and Q2, inputs could be allowed in this quantity excess demand of (SACOSS, 2016). This shall result to high prices until excess demand is equal to quota. PW would shall be the new equilibrium. The reason for this is that domestic supply and quota between Q3 and Q4 is similar to demand. Deadweight loss of surplus of clients and deadweight loss of efficiency as domestic suppliers are producing at greater expense from supplies expenses and the marginal cost. Supplies units at higher expenses when compared to what it would have costed. Figure 5: Quota on poker machine Non-price Policy The non-price policy can be put in place for the use of low-intensity machines, which will limit the losses of a gambler. In such a manner, actuarially reasonable poker machines can be utilised which will bring about losing a normal of zero cash just as an option. It is based on the principle that this type of device will require an average of an infinite number of bets for losing the initial stake of the gambler. This will result in inducing gambler fatigue as the initial stake will be prevented from reaching zero as has been happening when habitual gambling occurs with poker machines. Hence, the gamblers who tend to devote 10 hours on average each week will be constrained to 168 hours weekly. The goal is to replace income constraint with time constraint (Rowell & Gyrd-Hansen 2015). This will result in various advantages as it will centre on chronic gamblers without having any adverse effect on the general public who play for fun. When this methods are well implemented, they would help the gamblers financially and save those with gambling problem. Through the use of supply and demand curve and the Pigouvian tax, the non-price policy would aid in ensuring that demand of poker machines declines and lead to the increase in demand of optional benefits instead of gambling. Conclusion Australia has been facing a significant issue in terms of gambling, especially with the problem gambling. Hence, the analysis of this critical issue through the perspective of an economist. It revealed that there is a negative consumption externality associated with gambling through the electronic gambling machines, which is causing overconsumption. In order to deal with such type of negative externality, the government can induce tax which facilitates the market to reach the socially equilibrium position. Moreover, it can also impose a quota to limit the number of poker machines resulting in the reduction of demand and supply, or better still adopt a non-price policy such as poker machines, which are actuarially fair. References Amadeo, K. (2018). Pigiuvian taxes, their pros and cons and whether they work. Retrieved from https://www.thebalance.com/pigouvian-tax-definition-and-examples-. Besanko, J. & Breautigam, R. (2010). Microeconomics. John Wiley & Sons. Collins, D., & Lapsley, H. (2003). The social costs and benefits of gambling: An introduction to the economic issues. Journal of Gambling Studies, 19(2), 123-148. Delfabbro, P, King, D. (2012). Gambling in Australia: experiences, problems, research, and policy. 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