Purpose:This assignment is designed to assess your level of knowledge of the key topics covered in this unit
Assessment Question Week 2 and 3 Demand and Supply, and Elasticity
Due to inflation in Australia in December 2019, the price for petrol increased from AUD 1.35 to AUD 1.45. This caused petrol consumption to decrease from 2500 litres to 2450 litres at a 7-Eleven Petrol Station in Sydney.
Also, when the price for Hyundai 7.5kW Inverter Split System Air Conditioner (Reverse Cycle) increased from AUD 950.00 to AUD 990.00; demand for these air conditioners fell from 2500 units to 2000 units.
Following this condition, answer the questions below.
Assessment Question Week 4: Production costs
James was a high school teacher earning a net salary of $4500 per month. After working for one year, he quit his job to start his own kiosk business dealing in various consumer goods. In order to learn how to run the business, James enrolled in a TAFE to acquire accounting skills. James’ course was for 6 months. James had to pay $3,000 as tuition for the 3 months.
After the training, James borrowed $40,000.00 from his uncle whom he pays 8 percent interest per year.
Also, James withdrew $ 50,000 from his savings account. He had been earning 5 percent interest per year for this account. Further, to start the business James used his own premises given to him by his father.
His father had been receiving $11,000 from rent per year. Finally, to start the business James uses $75,000 he had been given by his father to go on holiday to USA.
James’s first year of business can be summarised as follows:
|Revenue- Orange section||250,000|
|Revenue- Beverages Section||180,000|
|Milk sales assistant expense||(30,000)|
|Motorcycleexpensetoease movement in city||(30,000)|
Based on your calculations of accounting profit and economic profit, would you advise James to return to his teaching job or keep his kiost job? Show your work!
Assessment Question Week 5 and 6:
The graph below represents sales per week of ABC Inc. Ltd, a monopoly multinational enterprise that supplies Hi-tech components. Use the graph to answer the questions that follow.
Assessment Question Week 7 and 8 Measuring the size of the economy
The table below is extracted from Happy land Republic, Bureau of Statistics records for 2018-2019. Use the information in this table to answer the questions that follow.
|Item||Base year (2015)||2016|
|Used car sales||5,000||2000.00||6,000||2,500|
|Factory components sales||8,000||500.00||10,000||1200.00|
|Milk litres sales||5,000||1.30||6,000||2.50|
|Raw materials for tractor assembling plant sales||4500||250.00||4450||300.00|
Inflation and unemployment, and Macro economics
There are two factors (Microeconomic factors and Macroeconomic factors) which has direct impact on the economy of a country. The macroeconomic factor includes employment rate and the inflation rate which has direct impact on the GDP of a country (Alizadeh, Vakilifard, & Hamidian, 2021). The aim of this report is to study the various concepts and factors of macro and microeconomics so that a broad understanding about the topic can be developed. In additional to this the sub objective of this study is to scrutinize the fiscal and monetary policies of Australia and its influences on the business environment.
Purpose of Study-
To acquire a broad understanding about the macro and microeconomics in an economy
To analyze the business environment nationally and internationally and its influences of business
To critically analyze the government fiscal and monetary policies
To study the influence of fiscal and monetary policies on business
Answer Number- 1
Price Elasticity Demand for Petrol and Hyundai:-
Price elasticity of demand is defined as the impact of price on the demand of price. If the price of products increase then the demand of products decreases while if the price of products decrease then the demand of products increases automatically.
The price elasticity of a product is measured as the changes in the demand of quantity while the price of the product changes. In general it has found that if the demand of products increases then the price of products get increased automatically. On the other hand if the price of product increase then the demand of product decreases automatically. Generally to calculate the price elasticity, two factors are required which are as following.
To calculate the price elasticity, percentage changes in quantity is need to divide by percentage changes in price of product.
In this given scenario of Hyundai and Petrol, the prices of both AC and Patrol has decreased due to which the demand of AC and petrol has reduced. In order to calculate the price elasticity Midpoint method will be an apt approach for this scenario.
The price of petrol was Australian $ 1.35 at the beginning which has increased to AUD 1.45 due to which the demand of petrol has also decreased from 2500 liter to 2450 liter. While the price of AC was AUD 950 at the beginning which has increased to AUD 990 due to which the demand of AC has also reduced from 2000 unit to 1500 units.
Price Elasticity of Demand of Petrol:-
Shift in petrol demand in percentage: [(2,450 – 2,500) / (2,450 + 2,500) /2] * 100
Shift in demand in percentages: (50) / 2,475 = 2.02%
Shift in petrol price by percentage = [(1.45 – 1.35) / (1.45+1.35)/2] * 100
Shift in petrol price by percentage = 0.10 / 1.40 * 100 = 7.14%
Hence, price elasticity of demand of petrol = -2.02% / 7.14% = -0.28
Price Elasticity of Demand of AC:
Change in AC demand in percentage: [(2,000 – 2,500) / (2,000 + 2,500) /2] * 100
Shift in demand in percentages: (500) / 2,250 = 22.22%
Change in AC price in percentage = [(990 – 950) / (990+950)/2] * 100
Change in AC price in percentage = 40 / 970 * 100 = 4.12%
Hence, price elasticity of demand of AC = -22.22% / 4.12% = -5.39
Elasticity of Each Commodity:
Elasticity of Petrol: After calculating the price elasticity of demand it can be said that demand of product will be reduced by 2.8% if the price of product increases by 10%. In this case the price elasticity of demand has obtained 0.28 which is less than 1 so that it can be said that the price elasticity of demand is inelastic (de Rassenfosse, 2020).
Elasticity of Hyundai: In this given scenario of Hyundai, it has found that the price elasticity of demand is more than 1 which is actually 5.39 so it can be said that the price elasticity of demand is elastic for the given period of time. If the price of products increases by 10% then the demand of product will be changed by 5.39% since the price elasticity of demand is 5.39 in this case of Hyundai.
Incidence of Increase in Tax:
Generally if the changes in tax impacts the price elasticity of demand and price elasticity of supply directly or indirectly.
Impact on petrol: As mentioned above the price elasticity of petrol in this given case is less than one which comes under the category of inelastic. Hence if the prices of petrol increase there is less impact on the demand of petrol since the price elasticity of demand is inelastic. There will be a minute shift in demand curve when the prices of petrol increases. Although the supplier will increase the price of petrol if the tax rate of the petrol increases which will affect the demand of petrol slightly.
Impact on Hyundai: In this given scenario of Hyundai price elasticity of demand is elastic which more than 1 is. Hence the customers are very concern about the price of product. In case if the tax rate increase the final selling price of product will also increase which will affect the demand of product. In such case supplier have to compromise with his profit and he will supply less product in the market.
Answer Number: 2
Calculation of Accounting and Economic Profit:
Accounting profit is defined as profit which is usually calculated by deducting all the expenses which has occurred while earning the profit. Economic profit is always less than the accounting profit as it does consider the cost of revenue foregone to earn the revenue. Bookkeeping profit is the anther name of accounting profit.
Accounting profit = Revenue – Total cost
Economic Profit: Economic gains are similar to accountable gains by explicitly deducing revenue costs. Economic profit however also includes the cost of opportunities in the period for one action versus another. Economic profit is based on economics and not accounting principles
Economic profit = Total revenue – explicit cost – implicit cost
Explicit cost is the cost directly linked to the company's business, i.e. rent, wages, etc.
Implicit costs are the cost of the opportunity to select the next best alternative for a company.
In this given case James is a high school professor, who earns $4,500 a month. He has however decided to leave his job and start his own business, which involves a series of costs, including the cost of opportunity for James to choose his company over teaching work.
The accounting profit and economic profit calculation is provided below:
|Revenue – Orange section||$250,000|
|Revenue – Beverage section||$180,000|
|Less: 2 cashier expense||($40,000)|
|Less: Truck expense||($80,000)|
|Less: Manager expense||($60,000)|
|Less: Milk sales assistant expense||($30,000)|
|Less: Equipment expense||($50,000)|
|Less: Motorcycle expense||($30,000)|
|Less: Interest expense on amount borrowed from uncle ($40,000 * 5%)||($3,200)|
|Less: Opportunity cost of Salary foregone ($4,500*12)||($54,000)|
|Less: Rent foregone||($11,000)|
|Less: Interest foregone ($50,000 * 5%)||($2,500)|
The economic return of the company is lower than the accounting profit, as measured above, because economic profit has affected the cost of opportunity to choose the next best option. However, in this situation, accounting benefit and economic profit are also positive, which indicates that James earns more than his wages. Therefore, it can be inferred that James can continue to do his business on account of accounting profit and economic profit, because profit gained is more than accounting profit and the chance cost of making this profit.
Answer Number- 3
Monopoly Elasticity Curve Demand:
The curve's elasticity is based on the marginal sales curve and demand price fluidity. The business is the only seller in the market in case monopoly market and price needs to decrease with every single unit sale. The marginal income curve is in this case lower than the demand curve. Therefore, the product demand is positive in pricing elasticity, while the marginal revenue is negative. The price elasticity of the demand is inelastic, and the marginal income is 0 (Amir, Gama & Maret, 2019).
Benefits of Monopoly Demand Curve:
Monopoly is a market scenario in which the market have the advantage to set the price of product as per his choice. Some of the advantage of monopoly market with context to ABC Inc. Ltd. are as followings:
Price maker: In the scenario of monopoly market, the marketer has the liberty to set the price of product as per his choice since there are no other competitors in the market.
Barrier for entry: It has the benefit of serving as a barrier to prevent the other businesses from entering the market.
Discrimination on price: In an elastic market, the business will sell a significant amount of its goods at lower prices. However, the quantity demanded in the industry decreases as the market is resilient as the company raises its product prices.
After analyzing the whole scenario of the company and concepts of monopoly it can be said that monopoly is a situation where the marketer has the liberty to set the price of products as per his choice since there is no other competitors in the market. In additional to this the marketer has maximize company’s profit by increasing the price of products and commodity.
Profit Earned by ABC Inc. Ltd:
In this given scenario of ABC Inc. Ltd Company, the company can earn more economic and supernormal profit since the company is in monopolistic situation. In monopoly the marketer has the liberty to decide the price of product as per his choice since there is no other competitors in the market. In MC = MR, the monopoly market maximizes profit and depends on the competition level. However, if the company is the only monopoly on the market, it would have zero competition and will gain super-normal profits. In additional this there is less or minimal threat of entry of other competitors in the market so the company can take the advantage of monopoly and maximize its profit by providing the products at higher price.
Effects on Consumer:
Market monopoly is known as price market in which the single motive of the marketer is to maximize company’s profit which affect the customers negatively and some of the negative impacts are as follows:
1. The production on the market is small.
2. The rates are high in contrast to the competitive markets.
3. Economic well-being is deteriorating.
4. There are few options for customers.
Monopolistic company not only have a negative impact on consumer but also it affect the whole market. In monopolistic market situation, the consumer have don’t have any other choice to buy a product since there are no other substitute of the product in the market. Monopolistic market is known as price market which mean the company only focuses on profit maximization rather than consumer satisfaction. In monopolistic market situation the companies have the liberty to set the price of product as per its choice which hampers the consumers because the consumer don’t have any other options apart from buying the product at higher price.
Answer Number- 4
Nominal and Real GDP Calculation:
Gross domestic products are defined as the product and services which are produced in a country in a particular year. In this given scenario, we need to calculate the real and nominal GDP. However the real and nominal GDP is slightly different from the GDP (Gross domestic products). In real GDP the effect of inflation also measured along with the product and services production throughout a particular year. The GDP (Gross domestic products) helps the economist or an individual to understand the performance of a country in a particular year.
To calculate the nominal GDP, number of output unit need to be multiplied by current price.
|Item||Base year (2015)||GDP||2016||GDP|
|Used car sales||5,000||2,000.00||10,000,000||6,000||2,500.00||15,000,000|
|Factory component sales||8,000||500.00||4,000,000||10,000||1,200.00||12,000,000|
|Milk in liters sales||5,000||1.30||6,500||6,000||2.50||15,000|
|Raw material for tractor assembling plant sales||4,500||250.00||1,125,000||4,450||300.00||1,335,000|
For the calculation of real GDP the effect of inflation is also considered. Based on the base year prices, the actual GDP is determined. The real GDP is determined by measuring the current year's output and multiplying it by base year prices.
|Used car sales||6,000||2,000.00||12,000,000|
|Factory component sales||10,000||500.00||5,000,000|
|Milk in liters sales||6,000||1.30||7,800|
|Raw material for tractor assembling plant sales||4,450||250.00||1,125,000|
The real GDP varies from nominal GDP, since the effect of inflation is also considered in real GDP. The actual GDP would be lower than the nominal GDP if the inflation is positive. The nominal GDP is the production of goods and services, at current market price while the actual GDP is inflationary, i.e. price change from one time to another due to macroeconomic factors. The macroeconomic factors are those which affect the GDP of a country directly or indirectly. For example employment rate and inflation rate have direct impact on the GDP of a country. In general, the actual GDP is marginally less than the nominal GDP and is an easier way to consider a country's true economic condition. The true GDP is usually calculated by the GDP deflator that means that it corresponds to the real GDP by quantity. Therefore, it becomes difficult to understand that the real GDP is not measured if the economy really is expanding or whether only the price increase is due to a rise.
Answer Number- 5
Impact of Aggregate Demand Determinants on Actual GDP:
There are four common determinants of aggregate demand: household consumption, investment, government spending, and the following exports. Aggregate demand demonstrates the relationship between the total goods, services and price levels generated when all other variables are assumed to be stable. On the other hand the aggregate demand curve determines the relationship between the demand of goods and services at real GDP and the price level. There is a negative correlation between a price level and the quantity of products or services required on the market where other variables are constant.
The aggregate demand is sloping download and usually connects people's actual wealth and consumption. As rates decline, people's income rises and consumers' expenditure increases. If prices are lower, overall demand will become higher and if price levels change, the real wealth of the people will be affected. The aggregate demand curve also provides the correlation between interest rates and investment. Thus the aggregate demand curve will move to the right as the price level shifts, e.g. when there is a change in the demand quantity of goods and services.
Rise in Price of Goods and Services:
Inflation is defined as the incensement in average price of products or services. During the inflation the cost or prices of food, clothes and transport increase so it triggers the economic inflation. But if prices of a few goods and services rise then there is less chances of inflation probably. This inflation is known as the cost drive inflation because of rising in prices of few goods or services. The key explanation for cost driven inflation is that wage rates or the price of raw materials have been raised. If the cost of production increases, the total supply of goods and services will fall. While the overall price of goods and services will rise as the balance shifts. Therefore, as the cost of goods or services in the economy is projected to rise, it indicates inflation. However, it may also trigger inflation if demand rises. Hence, it means that inflation in the economy will arise in Australia, if there is a raise in the general prices of goods or services very rapidly.