Economics Assignment Examining Business Cases With Economic Policies & Concepts

Question

Task: In this economics assignment, you are given 6 questions under cases/scenarios where you will apply economic concepts to support your recommendations.

Question 1
Part A.In this part of economics assignment, analyse each situation and answer the blanks based on the economic classification of good and services.
A) Research shows that in countries where incomes are high and continue to exhibit an increasing trend, couples decide to have less children. Children are regarded as a/an _______________ good.
B) A beer business in NSW sources glass bottles from a supplier in Victoria as well as tin bottlecaps from a company in Western Australia to package and ship its final product. For the beer business, glass bottles and tin bottlecaps are _______________ goods.
C) A marathoner crossed the finished line after 5 hours of running. His support team had a can of Red Bull energy drink, a bottle of vitamin enriched water, a jug of orange juice and a bottle of red wine on hand and the runner can make his own choice. For the thirsty runner --- the sports drink, water, juice and wine --- are ______________ goods.
D) Mary received a job promotion. With her salary increase, Mary decides to buy a new car despite having a perfectly usable car bought just 8 months ago. Cars in this scenario can be considered a/an _______________ good.

Part B. Classify whether the 4 situations above fall under microeconomics or macroeconomics. Justify your answer.

Question 2
Discuss the workings of tight monetary policy. What is/are the possible objective/s of a tight monetary policy? What are the tools used to control the policy? When will it be necessary to impose tight monetary policy in an economy? Who is responsible for overseeing monetary policy in Australia?

Question 3
a) Compare and contrast GDP versus GNP. Provide an example of each.
b) Based on the data provided, calculate GDP according to the Expenditure Model.

Question 4
Discuss Expansionary Fiscal Policy. Who is responsible for implementing fiscal policy? What may be adjusted to implement the policy? According to studies, fiscal policy can be slow to react to economic situations. Identify and discuss one reason why this may occur.

Question 5
With footware sales of USD 28 Billion in the fiscal year ended 31 May 2021, Nike is still No. 1 in the sneakers market. Identify the market structure where Nike operates.Discuss at least 2 features of that market structure.

Question 6
Choose a product/service. Describe the elasticity of supply for your product/service. Identify one factor that influences the elasticity of supply for that product/service. Discuss the what happens to elasticity of supply if you vary that factor.

Answer

ANSWER1:
Part A:
A) Inferior good
B) Intermediate good
C) Substitute good
D) Luxury good

Part B:
Situations given in part A falls under microeconomics as they are related to the person and company preference change due to change in the factors like price, production method and resources of production (Kaplan and Violante 2018, p167(2)). However, if the events were related to overall economic preference change, they would be considered macroeconomics.

ANSWER 2:
Tight monetary policy is a instrument of the central bank to control the fast moving economic growth. When the inflation rate increases at a great speed with the increasing price and economy expands at a great rate, through increasing the interest rate or open market operations central bank limits the growth. Thus, the objective of the tight monetary policy is to control the rapidly expanding economy (Baig and Goldfain 2021, p6(2)). In order to control the tight monetary policy, central bank often use increasedin interest rate. Besides, central bank increases the reserve ratio to control the market liquidity. Thirdly, central bank reduces the money supply through reducing the money printing to control the tight monetary policy (Caordero 2019, p10(2-4)). Tight monetary policy is implemented when the economy expands at a very high rate that increase the price rate of economy and leads to increase in the inflation. Thus, to control the overheated economy where the inflation rate is high, tight monetary policy implementation is necessary as contractionary monetary policy or fiscal policy will not work here.

Reserve Bank of Australia or the RBA oversees the monetary policy in Australia.

ANSWER 3:
a.Gross Domestic Product or the GDP is estimation of the market value of all goods and services in an economy within afinancial year produced in domestic market both by the domestic and foreign nationals. Whereas, Gross National Product or the GNP is the estimation of value of goods and services produced by the domestic people as well as the non-residentials through the foreign investment Campbell and Mankiw 2021, p319(2)).

Thus, GNP is close estimation of real value of all goods and services in an economy within a financial year.

ANSWER 4:
Expansionary fiscal policy is the approach of the government to enhance the economic operation of the economy through the increase in the government expenditure and reduction in tax. Thus, government is responsible for the implementation of the fiscal policy (Stupak 2019, P2(3)).
To implement the fiscal policy, government need to adjust the government expenditure or the tax rate or combination of the both.

It is true that fiscal policy takes time to reach to economic situations as it influences the overall economy in a cyclical way. With the higher government expenditure and reduced tax rate, government increase employment and disposable income of the people of state. With higher disposable income, demand is increased and it increase the price that increase supply (Ji 2017, p2(2)). With the multiplier effect, overall impact of the fiscal policy expands and increase the overall economy to a great extent in successive period. Thus, the fiscal policy takes time to react to economic situations.

ANSWER 5:
Underpinning the operating market of Nike, it can be mentioned that the firm operates in an oligopoly market structure.
As per the (Chen et al. 2020, p283(3)), characteristics of the oligopoly market is as below:
a. There are many buyers in the market, however, the number of sellers is limited
b. Entry barrier in the market is high, however, exit barrier is low
c. While making decision, firms in oligopoly market are interdependent

ANSWER 6:
Chosen product is Airline travel.
Supply elasticity of airline travel is elastic in nature. Due to the luxury nature of the good, when the price change for airline travel, supply of the same changes to a great extent. Hence, depending upon this feature, it can be said that the supply of airline travel is elastic in nature (Wang et al. 2018, p.81(3)). One factor that influence the elasticity of the supply for the airline travel industry is availability of alternative airline.

When the availability of the alternative airline increases, it leads to fall in price and low supply of the seats by the airlines to specific routs. Besides, easy shifting from one airline to another airline makes the airline travel more demand biased (Liu 2018,p2(2)). Thus, the supply eventually become inelastic when the higher number of alternatives become available.

Reference:
B Jia (2017), A Second Thought on Estimating Expansionary Fiscal Policy Effects in the US. https://mpra.ub.uni-muenchen.de/89264/1/MPRA_paper_89264.pdf
G Kaplan and GL Violante (2018), Microeconomic heterogeneity and macroeconomic shocks, Journal of Economic Perspectives, 32(3), pp.167-94. https://scholar.google.com/scholaroutput=instlink&q=info:gjnuFELLxjoJ:scholar.google.com/&hl=en&as_sdt=0,5&as_ylo=2017&scillfp=4167926818542713923&oi=lle
JA Cordero (2019), Costa Rica during the global recession: Fiscal stimulus with tight monetary policy, Center for Economic and Policy Research, Washington DC, July. www. cepr. net. https://core.ac.uk/download/pdf/6383339.pdf
JM Stupak (2019), Fiscal policy: economic effects, Congressional Research Service, Report, pp.1-11.https://www.everycrsreport.com/files/20190516_R45723_cbcdb99cc61a5e56d35ee060e624c41770328945.pdf

JY Campbell and NG Mankiw (2021), International evidence on the persistence of economic fluctuations, Journal of Monetary Economics, 23(2), pp.319-333. https://www.nber.org/system/files/working_papers/w2498/w2498.pdf
K Wang, A Zhang and Y Zhang (2018), Key determinants of airline pricing and air travel demand in China and India: Policy, ownership, and LCC competition, Transport Policy, 63, pp.80-89. https://eprints.usq.edu.au/33655/1/manuscriptR1wzz20171026.docx
MT Baig and MI Goldfajn (2021), Monetary policy in the aftermath of currency crises: the case of Asia, Economics assignment International Monetary Fund. https://www.econstor.eu/bitstream/10419/186643/1/td399.pdf

Y Chen, C Lawell and Y Wang (2020), The Chinese automobile industry and government policy, Research in Transportation Economics, 84, p.100849. http://www.des.ucdavis.edu/faculty/lin/China_auto_mkt_JTRF_paper.pdf

Y Liu (2018), Estimating the elasticity of supply of housing space rather than units, Regional Science and Urban Economics, 68, pp.1-10. https://www.researchgate.net/profile/Yishen-Liu/publication/325204082_Estimating_the_Elasticity_of_Supply_of_Housing_Space_Rather_than_Units/links/5afdaf70a6fdcc3a5a9fc613/Estimating-the-Elasticity-of-Supply-of-Housing-Space-Rather-than-Units.pdf