Chapter 3 -- The Role of Goverment in a Market Economy

http://www.smh.com.au/news/national/government-push-to-cork-alcopop-loophole/2008/11/22/1226770800593.html

Excise Tax in Drinks

Summary
The federal government in Australia closed a big loophole drinks that taste similar to alcopops. The reason was because the alcohol makers found a solution where they were trying to eliminate taxes by producing pre-mixed drinks. They did this by using the beer method where the alcohol was filtered out. These drinks are packaged like regular ready-to-drink beverages that contain sugar and flavouring such as fruit juices. This loophole caused producers to pay a cheaper excise rate of $40.46 per litre of alcohol instead of $68.54 per litre of alcohol. The government will further investigate more loopholes that concern them.

Connection
In Chapter 3, the definition of excise taxes are extra costs the government imposes on the sale of particular commodities. The suppliers of alcohol tend to pay for the excise tax to the government in which allows the government to gain some revenue. The supplier raises the price of alcoholic beverages so that the consumers suffer more by paying more taxes. This leads the suppliers to find a smart loophole in their drinks where they can decrease excise tax amounts. The loophole was created by the suppliers because they hoped of gaining more profit for themselves. Consumers will be satisfied with this cheaper product because it almost tastes the same as alcopops. Therefore, the loophole gives advantages to both the consumer and supplier.

Reflection
It is reasonable why a product with an elastic demand, in this case alcohol, has the objective of raising revenue for the government. With excise taxes imposed on alcohol, consumers will still continue buying them. I am not surprised that manufactures have found this loophole to benefit their product through profits for themselves. I don’t think closing the loophole will solve the problem because eventually other loopholes will be discovered. Therefore, I believe that it is best that the government should tighten the definition of beer in the tax act instead.

Chapter 2 -- Operation of a Market

http://www.canada.com/vancouversun/features/businessbc/story.html?id=18f365b0-b773-4c4a-a679-6c1f52e7d3b1


Fortuna Silver Mines Inc.

Summary
Simon Ridgway, founder of Fortuna Silver Mines Inc. believes future profit of silver will increase up to $29 million from $11 million in 2007. He realized that they did a good job from 2007 revenues from Caylloma mine in Arequipa, Peru and that the price of silver went over $20 an ounce. The Caylloma mine produced 500 ton to 1100 tons daily and hopes to produced 1.5 million ounces for next year. He says the company prospers quickly because the supply decreased as demand grew. With the next project in Oaxaca, Mexico, he is confident that it would be a much more successful mine and that the prices would continue to rise.

Connections
There were factors that caused consumer demand for silver to change. It might have been because other substitutes like lead and zinc prices to have decreased and the company increased production to increase the prices for competition. The increase in demand will result the demand curve to shift right, more silver will be demanded, regardless of the price, than previously. There is a change in supply. An increase in productions costs will results the supply curve to the left. Then same amount of silver will be supplied to the market at a higher price to earn a profit.

Reflections
I agree with the article that prices for silver will continue to rise in the future and would become more profitable. Another factor would be because of expectation of future prices that silver will continue to rise. The reason is because I believe the demand for silver would increase, since silver makes up 1/3 of the world’s jewelry and silverware. Silver is necessary to make up an electrical circuit. . The fact that silver has properties of being a good conductor and that it can resist high temperatures. It makes it valuable to be used in technology.