Business Economics Assignment 2022

Running head: BUSINESS ECONOMICS
BUSINESS ECONOMICS
Name of the Student
Name of the University
Author Note

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Table of Contents
Introduction......................................................................................................................................2
Question 1........................................................................................................................................2
Impact of the outbreak of Middle East hostility on Petrol and Passenger Cars..........................2
Impact of releasing Electric Cars at affordable price..................................................................4
Question 2........................................................................................................................................5
Effect of the Government Policy to encourage young people to attend Universities..................5
Long-term determinant of economic growth and the ways by which government influences the
growth..........................................................................................................................................7
Question 3........................................................................................................................................8
Imposition of Tax........................................................................................................................8
Market Structure in the Australian Supermarket sector..............................................................9
Conclusion.......................................................................................................................................9
References......................................................................................................................................11

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Introduction
The assignment focuses on investigating the consequence of the outbreak of Middle East
hostility on petrol and petrol running passenger car markets of Australia. It also examines the
impact of releasing latest Electric cars at affordable price on Petrol cars market. The effect of the
government policy of educating the young workforce on output and Australian economy is
critically evaluated. Long term determinants of economic growth and the ways of influencing the
economic growth by government are discussed broadly in this paper. Finally the assignments
aims at finding out the impact of tax imposition on cigarettes and coffee consumption along with
understanding the market structure of Australian supermarket.
Question 1
Impact of the outbreak of Middle East hostility on Petrol and Passenger Cars
The outbreak of Middle East hostility is expected to drive up the oil price in the global
market. With the increase in global oil price, the price of petrol will also rise in Australia. The
impact of the upsurge of the petrol price in Australian market for petrol and passenger cars with
large engines that run on petrol is depicted in the diagrams (Figure 1 and Figure 2) below.

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Q* Q Quantity
Price
D
*
S*
S
P
P*
Figure 1: Australian market for Petrol
Source: Created by Author
From figure 1 it becomes clear that the rise in the price of petrol in Australia from P to P*
will shift the supply curve (S) leftward to S* which in turn will reduce the quantity of petrol
supplied by the extent (Q-Q*) in the Australian Market (Pindyck and Rubinfeld 2015).

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Quantity
Price
D’
*
D”
S
P”
P’
Figure 2: Australian Market for Cars running on Petrol
Source: Created by Author
The fall in the quantity supply of petrol, accompanied by the rise in its price will reduce
the demand for the passenger cars running on petrol thereby moving the demand curve to the left
from D’ to D” (Varian 2014). Now with the leftward swing of the demand curve, it is expected
that the price of the cars (P’) might fall to P” as depicted by figure 2.
Impact of releasing Electric Cars at affordable price
There is an expectation in the Australian car market that the latest electric car will be
released shortly at a reasonably affordable price. Electric cars will act as substitute products for
Petrol cars in the vehicle market (Piana 2014). If the latest electric car is released in the
Australian automobile market at a very affordable price then the consumers will prefer the
electric cars more than those cars which run on petrol because of the convenience and
inexpensiveness. Moreover, the outburst of Middle East hostility will boost up the petrol price all

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W
1
S1
S2
A
B
University
Students
WorkforceW
2
over, making it even more expensive to maintain a car that runs on petrol. On the other hand,
maintenance of Electric Cars are fairly cheaper and easier (TyreeHageman 2018). Consequently,
the demand for the Petrol cars will decline in the Australian car market with more customers
shifting towards buying the relatively low-priced Electric Cars.
Question 2
Effect of the Government Policy to encourage young people to attend Universities
The government of Australia is inspiring young people for attending universities in order
to increase the proportion of the educated youth workforce. The net impact of such policy of
Australian government is illustrated by figure 3 and figure 4.
Figure 3: Production Possibility Frontier (PPF)
Source: Created by Author

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University
Students
Workforce
Initially the Australian economy was at the point A with W1 workforce and S1 number of
university students but after the adoption of the policy of increasing the number of educated
youths in the labor force, the number of people available for work reduces. Hence, the total
availability of people in the workforce reduced to W2 and the number of university students rose
to S2. Therefore the economy shifts from point A to B as shown in the figure 3.
Figure 4: Outward Shift of PPF
Source: Created by Author
After completing the university degree when the youths will enter the workforce, they
will be more skillful as laborers. As they become more dexterous they will be more productive.
Thus having productive and proficient labors in the workforce will obviously rise the total

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production of the economy, henceforth incrementing the overall output level (Mankiw 2014).
The increase in total output will push the Production Possibility Curve (PPF) curve outward,
which figure 4 represents. When PPF curve shifts outwards it implies that the nation is
experiencing economic growth (Jorgenson, Gollop and Fraumeni 2016).
Long-term determinant of economic growth and the ways by which government influences
the growth
Rise in production of goods and services is key to economic growth. There exist three
most important factors that determines the long-term economic growth directly. These factors
include,
Physical Capital: Physical Capital includes the factors that are required for production like
machinery, factories, transportation equipment, computer, buildings and others which can
expand the capacity of an economy to produce more goods and services.
Human Capital: Human capital refers to the amount of efficiency, knowledge and experience
possessed by workers which influence their productive capacity. Appropriate training and
education help labors to gain more knowledge and skill, enabling them to operate in an effective
and efficient manner, thereby increasing the overall productivity (Teixeira and Queirós 2016).
Technological Progress: The technological advancement helps in producing more output
efficient by involving less resources or inputs.
Government can influence the economic growth with his special tools of allowing and
forbidding. Government must invest and adopt policies for building strong human capital,
creating new infrastructure, improving the existing system, developing entrepreneurship,

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PPC
O
PC
O
Burden on
Producers
Burden on
Consumers
Burden on
Consumers
DC
O
SC
O
DC
I
SC
I
QTC
I
PCC
O
PPC
I
PC
CI
QCI
PCI
PricePrice
TAX ON CIGARETTES TAX ON COFFEE
QuantityQC
O
QTC
O
Burden on
Producers
encouraging research and development to bring technological advancement and others which
helps in stimulating the country’s economic growth (d’Agostino, Dunne and Pieroni 2016).
Question 3
Imposition of Tax
The effect of imposition of sales tax on all brands of cigarettes and consumption of coffee
by Australian government is portrayed in a comparative way by the figure 5.
Figure 5: Burden of Tax
Source: Created by Author

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For cigarettes, the demand is inelastic as cigarettes are addictive substances so the demand curve
(DCI) is relatively steeper (Layton, Robinson and Tucker 2016). At equilibrium, the price is PCI
and quantity is QCI but after imposition of sales tax on all brands of cigarettes the price rose to
PC
CI (PP
CI -PC
CI= sales tax). It is found that the burden of the tax is mostly bore by the
consumers (PC
CI -PCI) than the producers (PP
CI -PCI).
In case of coffee, the demand is elastic because with a slightest rise in price, consumers
might shift towards buying its substitute product (tea), so the demand curve is comparatively
flatter (Guerrero-López, Unar-Munguía and Colchero 2017). Hence when tax is imposed on
consumption of coffee, in that case the producers bear the tax burden more than the consumers.
Market Structure in the Australian Supermarket sector
The market structure of Australian Supermarket can be categorized as Oligopoly because
a significant share of the grocery sector is mainly dominated by Coles and Woolworths
(Sonnenholzner and Wambach 2014). Even though the products that the firms sell are similar but
still there exist some amount of variation among the stuffs they offer. Significant barriers for
entry in the market exist because of powerful companies that are already controlling the industry.
Moreover the market structure can be justified as an oligopoly, since the major companies,
Woolworth and Coles, continuously monitor the actions and behaviors of their rival firm,
generating a great deal of competition within the sector (Kuenne 2016).
Conclusion
From the total analysis it is concluded that the outbreak of Middle East hostility has
increased the price of petrol in Australian while decreasing the quantity supplied. This has also

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influenced the Australian Petrol car market in terms of declined demand and the demand will fall
even further if latest Electric car is released at an affordable price. The solution to the second
question ensures that the policy undertaken by the government will rise the overall Australian
output and lead to economic growth when the more youths will join the workforce after
completing their university degrees. Physical Capital, human capital and technological
advancement are the key determinants of economic growth and government must adopt policies
to encourage these factors in order to influence the economic growth. Answer to the first part of
the third question shows that in case of cigarette when sales tax is imposed, the consumers bear
the burden more than producers but for coffee the producers bear most of the tax burden. Finally
it is observed that Oligopoly market structure is prevalent in the Australian supermarket sector.

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References
d’Agostino, G., Dunne, J.P. and Pieroni, L., 2016. Government spending, corruption and
economic growth. World Development, 84, pp.190-205.
Guerrero-López, C.M., Unar-Munguía, M. and Colchero, M.A., 2017. Price elasticity of the
demand for soft drinks, other sugar-sweetened beverages and energy dense food in Chile. BMC
public health, 17(1), p.180.
Jorgenson, D., Gollop, F.M. and Fraumeni, B., 2016. Productivity and US economic
growth (Vol. 169). Elsevier.
Kuenne, R.E., 2016. Price and nonprice rivalry in oligopoly: The integrated battleground.
Springer.
Layton, A.P, Robinson, T. and Tucker, I.B. 2016, Economics for Today, 5th Asia-Pacific edn,
Cengage Learning, Australia.
Mankiw, N.G., 2014. Principles of economics. Cengage Learning.
Piana, V., 2014. Substitute goods.
Pindyck, R.S. and Rubinfeld, D.L., 2015. Microeconomics.
Sonnenholzner, M. and Wambach, A., 2014. Oligopoly in insurance markets. Wiley StatsRef:
Statistics Reference Online.
Teixeira, A.A. and Queirós, A.S., 2016. Economic growth, human capital and structural change:
A dynamic panel data analysis. Research policy, 45(8), pp.1636-1648.

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TyreeHageman, J., 2018. Wired for Gasoline: Consumers and Value Construction in the Plug-In
Hybrid and Electric Vehicle Market. University of California, Davis.
Varian, H.R., 2014. Intermediate microeconomics with calculus: a modern approach. WW
Norton & Company.