IntroductionAnalysis of Article 1: ‘Experts Want Alcohol Prices to Increase, ’ by Rose, D. (2010)The core of this article is to explain the ways of reducing the consumption of alcohol in Australia since it has been shown to be among the worst abusers of alcohol in the world (Rose 2010). The major proposal that has been presented in order to mitigate this problem among the population of Australians is to introduce volumetric tax on alcoholic beverages (Rose 2010). The effect of taking this step is that it will make alcohol more expensive, and people will drink less.
It is also stated that a volumetric tax would result in the replacement of the 13 different alcohol rates of tax in the nation with a ‘single per-volume levy that would not differentiate between alcoholic beverages’ (Rose 2010, paragraph 8). Analysis of Article 2: ‘The Avoidable Costs of Alcohol Abuse in Australia and the Potential Benefits of Effective Policies to Reduce the Social Costs of Alcohol, ’ by Collins, D. and Lapsley, H. (2008)The main idea presented in the article is the social costs of alcohol and ways of preventing such negative effects among the people of Australia.
The author states that the abuse of alcohol in Australia is grave problem and its social costs in 2004/05 have been approximated to be more than $15 billion (Collins and Lapsley 2008). The article estimates the ways in which these costs can be reduced by the implementation of public policy interventions such as the introduction of taxation. The authors agree that there is sufficient evidence indicating that higher taxation for alcohol, through raising of alcohol prices, can be effective in the reduction of alcohol consumption.
The authors propose that a strong and ideal case would be a form of uniform tax rates across all forms of alcohol (2008, 16). The estimates of the reduction in social costs of abuse of alcohol which would be attained through time by increasing the levels of alcohol taxation are shown in the table below. Table 1: Potential Reduction in Social Costs Due to Increased Alcohol Taxation (2004/05 Prices)NorwayUnited StatesItalyReduction in other countries’ per capita38.8 %14.3%18.4%Reduction in Australian social costs$m$m$mTotal Tangible Costs 4,2001,5501,990Total Intangible Costs1,740640820Reduction in total Australian Social Costs5,9402,1902,810Purpose of the ReportThe purpose of this report is to carry out an article analysis on the subject of alcohol consumption in Australia with the aim of using economic models to support the proposal that volumetric taxation should be introduced in order to reduce alcohol consumption.
Economic Model and ConceptThe report will analyze the article by use of the supply and demand economic model of price determination in a market as well as the elasticity concept. This model is based on the idea that the unit price of a given good will change until it reaches a point where it settled and this is the point where the quantity demanded by consumers will be equated to the quantity supplied by producers (Saffer and Dave 2002).
This leads to an economic equilibrium of quantity and price. There are major principles that drive demand and supply especially in relation to the Australian market for alcohol. This will be further discussed in the analysis of the articles. Elasticity is a concept in the theory of demand and supply and it means how strongly the supply and demand of quantities responding to many factors, including price as well as other determinants.
Arc elasticity calculates elasticity over a range of values while point elasticity utilizes differential calculus in determining the elasticity at a given point (Room 2004).