Business Economics

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Student
Name of the University
Author note

BUSINESS ECONOMICS1
Table of Contents
Answer to Question 2a.....................................................................................................................2
Answer to Question 3......................................................................................................................3
Answer to Question 4......................................................................................................................6
Answer to Question 6......................................................................................................................8
Answer to Question 8....................................................................................................................10
References......................................................................................................................................13

BUSINESS ECONOMICS2
Answer to Question 2a
When a business or country produces a particular product at a faster rate and a greater
quality for a higher profit than any other business or country, then it is called absolute advantage.
The marginal cost of that product will be relatively low and manufactured in an effective and
efficient manner. When a business or country involves in production of multiple goods with
scarce resources and takes into consideration the lower opportunity cost other than marginal cost,
it is called comparative advantage.
The ratio of prices of export to prices of import is defined as terms of trade. It represents
the amount of import products a country traded for per unit of export products. A particular rate
at which a currency is exchanged with another currency, is known as an exchange rate (Bohi,
2017). There is an impact of exchange rate on the terms of trade of a country. As the change in
currency value will influence the prices of its imports.
The economy is affected by many external shocks, which includes supply-side shock and
demand-side shock. Demand-side shock involves unexpected tax cuts or increase, increase in
unemployment rate, financial crisis and economic downturn. Whereas, supply-side shock
involves political turmoil, unexpected change in technology of production, natural disasters and
sharp increase in price of some commodities.
When the quantity of exports of a country is higher than its quantity of imports, it is
called trade surplus (Haffert & Mehrtens, 2015). There are positive as well as negative effects of
trade surplus. A trade surplus may generate economic growth and more employment and may
increase interest rate and prices of a country. When the amount of income is greater than the

BUSINESS ECONOMICS3
expenditures of a country, then it is known as budget surplus. This is an indication that the
budget is efficiently proposed and managed by the existing government.
Answer to Question 3
Inflation rate
Figure 1: Inflation rate of Australia
Source: (Rba.gov.au, 2019)
In June 2019 the annual rate of inflation in Australia was 1.6% (Rba.gov.au, 2019).
Though, the inflation trend of Australian economy is downward slopping.