Business Economics Questions and Answers 2023

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Student
Name of the University
Course ID

BUSINESS ECONOMICS1
Table of Contents
Question 2........................................................................................................................................2
Absolute advantage and comparative advantage.........................................................................2
Terms of trade and exchange rate................................................................................................2
A demand side shock and a supply side shock............................................................................2
A trade surplus and a budget surplus...........................................................................................2
Question 3........................................................................................................................................3
Current state of Australian economy...........................................................................................3
Question 4........................................................................................................................................7
Question 5........................................................................................................................................9
Question a....................................................................................................................................9
Question b..................................................................................................................................10
Question c..................................................................................................................................10
Question d..................................................................................................................................11
Question e..................................................................................................................................12
Question 7......................................................................................................................................12
Question a..................................................................................................................................12
Question b..................................................................................................................................13
Question c..................................................................................................................................14
Question d..................................................................................................................................14
Question e..................................................................................................................................15
References......................................................................................................................................16

BUSINESS ECONOMICS2
Question 2
Absolute advantage and comparative advantage
The international trade theory defines absolute advantage as one country’s capacity to
produce specific good at a lesser absolute cost compared to other nation. In contrast, comparative
advantage is related to opportunity cost rather than absolute cost. It is one country’s capacity to
produce a good with a relatively lesser opportunity cost.
Terms of trade and exchange rate
Terms of trade stands to signify price of export relative to price of import and presented
as ratio of price of exported goods to the price of imported goods. Exchange rate defines value of
domestic currency presented in terms of foreign currency (Uribe & Schmitt-Grohe, 2017). It is
the ratio of value of one currency to other.
A demand side shock and a supply side shock
A demand side shock is the sudden event that leads to an expansion or contraction of
demand causing prices to increase or decrease. Supply side shock in contrast refers to the
phenomenon that results in an expansion or contraction of supply. Depending on movement of
supply prices move accordingly.
A trade surplus and a budget surplus
Trade surplus is a representative measure of positive trade balance signifying a situation
where export of a nation is more than its import. Budget surplus is the situation of having income
higher than expenses in a specific time period like a fiscal year or a financial quarter (Agenor &
Montiel, 2015).

BUSINESS ECONOMICS3
Question 3
Current state of Australian economy
Inflation
2015 2016 2017 2018 2019
1.5
1.55
1.6
1.65
1.7
1.75
1.8
1.85
1.9
1.95
1.7
1.5
1.9
1.8
1.6
Inflation
Year
Rate of inflation
Figure 1: Trend in inflation rate
(Source: Abs.gov.au, 2019)
The annual inflation rate in Australian economy in June quarter increased to 1.6 percent
from accounted inflation rate of 1.3 percent in May quarter. The food inflation hits the highest
along with an increase in transport prices.