Economic Principles & Decision Making

This document discusses economic principles and decision making. It covers topics such as the relationship between the demand curve and quantity demanded, the use of advertising by monopolistic competition firms, the impact of exports on GDP, and the calculation of the consumer price index. It also provides insights into the Australian economy for the fiscal year 2018-2019.

Running head: ECONOMIC PRINCIPLES AND DECISION MAKING
Economic Principles & Decision Making
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ECONOMIC PRINCIPLES AND DECISION MAKING
Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 3:......................................................................................................................3
Answer to question 1A:...................................................................................................................3
Answer to question 1B:...................................................................................................................3
Answer to question 1C:...................................................................................................................4
Answer to question 1D:...................................................................................................................4
Answer to question 4:......................................................................................................................4
Answer to question 5:......................................................................................................................5
References list:.................................................................................................................................6

Po
Qo
Dd
Quantity demanded
D1
P1
Demand curve
ECONOMIC PRINCIPLES AND DECISION MAKING
Answer to question 1:
No, the demand curve is not equal to the quantity demanded as the demand curve
illustrates the relationship between quantity demanded and the price. That is, demand curve is the
relationship between two variables and quantity demanded is itself a variable and refers to one
particular point on the demand curve. Therefore, quantity demanded and demand curve is
different concepts. Quantity demanded refers to the amount of product that is demanded at one
particular price. Demand curve is negatively sloped that is downward sloping whereas quantity
demanded is the horizontal distance between the demand curve and vertical axis (Ehrenberg and
Smith, 2017).
Diagram depicting demand curve and quantity demanded:
(Source: created by author)

ECONOMIC PRINCIPLES AND DECISION MAKING
Answer to question 3:
Monopolistic competition firms uses technique of advertising for gaining control in the
market and creating product differentiation and as a result, they charge higher price in the
market. The technique of advertising helps in informing consumers about the perceived and
physical difference that will result in increasing product differentiation. Advertising helps in
reducing demand elasticity and increasing demand. The monopolistic competition firm faces
comparatively elastic demand that causes limits on the price charged. Firms will keep on
advertising as long as the cost of advertising is less than the revenue generated from advertising.
Demand because of advertising may become inelastic and increase and this is likely to increase
average and marginal cost at the same time (Edler and Yeow, 2016).
Answer to question 1A:
The general pattern of balance of trade of any country can be easily measured from the
proportion of export of country to GDP. An increase or decrease in GDP of any nation is
dependent upon the imports and exports made. It is so because an increase for exports will
increase the GDP as it brings money into the economy and decrease in exports reduce GDP as
money flows out of the economy. Any increase in GDP results in increased globalization
because of favorable balance of trade and the country is exporting more to other different
countries (Nguyen and Wang, 2019).
Answer to question 1B:
Export ratio of Canada is calculated from exports value by the total amount of GDP.
Therefore,

ECONOMIC PRINCIPLES AND DECISION MAKING
Exports ratio= Exports/ GDP of Canada
= 1800/542= 3.321
Answer to question 1C:
Percentage of GDP to current account balance is obtained by dividing current account balance by
GDP multiplied by 100.
Percentage of GDP to current account balance= (400/16800) * 100 =2.38
Answer to question 1D:
Trade balance is the most significant component of current account balance, which
measures the net income of a country that is earned on the international assets. Tracking of the
components and measure helps in evaluating the overall growth of economy.
Answer to question 4:
The consumer price index by the government statistician is calculated by deciding on the
basket of goods that is the representative of the average purchase by household. For this, a
national survey on the consumer expenditure is done on about 70000 households. The consumer
expenditure is broken down in eight major groups and this is broken into the categories of 200
individual item.

ECONOMIC PRINCIPLES AND DECISION MAKING
Answer to question 5:
For the fiscal year 2018-2019, the economy of Australia is slowed down due to severe
drought and housing downturn. However, the fiscal and monetary stimuli is expected to bring the
economic growth back on the track. After the per capital recession that initiated in second half
of 2018, economy of Australia is slowly recovering and the household disposable income will be
boosted by lower mortgage repayments and cut in taxation (Ballantyne et al., 2019). Therefore, it
is inferred that the labor market and economy of Australia is resilient due to robust output, labor
force participation and rising employment.

ECONOMIC PRINCIPLES AND DECISION MAKING
References list:
Ballantyne, A., Cusbert, T., Evans, R., Guttmann, R., Hambur, J., Hamilton, A., ... & Rees, D.
(2019). MARTIN Has Its Place: A Macroeconometric Model of the Australian
Economy (No. rdp2019-07). Reserve Bank of Australia.
Edler, J. and Yeow, J., 2016. Connecting demand and supply: The role of intermediation in
public procurement of innovation. Research Policy, 45(2), pp.414-426.
Ehrenberg, R.G. and Smith, R.S., 2017. Modern labor economics: Theory and public policy.
Routledge.
Nguyen, V.H. and Wang, J., 2019. The Australian Economy in 2018–2019: Convergence in
Economic Activity across Australia. Australian Economic Review, 52(1), pp.5-18.