Economics for Managers

Explore the topic of Economics for Managers with study material including solved assignments, essays, and dissertations. Get access to a wide range of resources at Desklib.

Running head: ECONOMICS FOR MANAGERS
Economics for Managers
Name of the Student
Name of the University
Course ID
Student ID

1ECONOMICS FOR MANAGERS
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................4
Answer a.................................................................................................................................4
Answer b................................................................................................................................6
Answer c.................................................................................................................................6
Answer 3....................................................................................................................................6
Answer 4..................................................................................................................................10
France...................................................................................................................................10
Spain.....................................................................................................................................11
United State..........................................................................................................................11
Recommendation to improve tourism in Australia..............................................................12
References................................................................................................................................13

2ECONOMICS FOR MANAGERS
Answer 1
The article named “Tourism Investment Monitor 2017,” provides a brief overview of
tourism industry in Australia. The tourist attractions and associated economic contribution of
the industry increases investment in the investment. In the year 2016-17, investment projects
in tourism totaled $37.8bn. These investment projects include individual investments initiated
in accommodation, art, recreation and business service and aviation. Of these art, recreation
and business service account for highest valued project with value being $17.0bn.
Several factors influence investment decision of an economy. In a specific industry
investment particularly depends on trend in performance of the sector and future prospective
growth (Goodwin et al. 2015). Tourism in Australia is one of the fastest growing industry.
The increasing flow of visitors in the nation can be seen from growing number of night stay
in hotel and other business service apartment, number of passengers in airlines and aggregate
spending in tourism.
The increase in tourism demand in Australia is accompanied by an increase in supply
and contribute to an expansion of the industry. The industry experienced a considerable
increase in supply since 2010. In the presence of housing crisis resulted from increasing
demand side pressure of houses in capital cities, tourists cannot be accommodated without
increasing supply. If demand exceeds supply then there is an increasing pressure on house
adversely affecting the tourism industry (Agenor and Montiel 2015). The high demand from
international and domestic tourism demand increases occupancy rates in capital cities like
Sydney and Melbourne above the national average.
The theory of demand suggests, an increase in demand for a particular good increases
the demand for its complementary goods as well. In case of tourism, the complementary
services of tourism refer to other services related to tourism (Bernanke, Antonovics and

3ECONOMICS FOR MANAGERS
Frank 2015). Accommodation market is one sector directly related with tourism. With inflow
of tourists, there is a visible increase in demand for rooms and other services in hotel and
business apartment. There is also an increase in demand for passengers’ seat in domestic
airlines. Significant investment is needed to increase place in educational institute in order to
support inflow of international student.
The favorable economic environment of Australia is a significant determinant of
tourism industry. Australia is the only nation that escape from recession for a considerably
long period and maintain steady pace of economic growth (Heijdra 2017). Increase in number
of visitor support the growth of accommodation market especially the hotel market. Almost
50 percent investment in tourism industry have come from foreign investors (especially
China). Two vital capital cities Sydney and Melbourne constituted strong performance in
accommodation market. Steady increase in demand of tourism boosted new development in
Sydney. The Australian economy faced a temporary downturn resulting from slow-down of
the most prosperous mining sector. The situation however soon recovered. Growth of
Chinese visitors has been attributed from less complex procedure of visa processing
agreement of air service. The increase in visitation in terms of both domestic and
international and domestic visitors imply fast growth in the tourism industry.
The accommodation investment in the tourism industry include investment in stand-
alone accommodation as well as accommodation used for mixed purpose. Mixed-use
accommodation implies accommodation used for both tourism and non-tourism purpose.
Investment in the stand-alone accommodation accounted largest increase in the capital cities.
Significant investments have also been made on projects comprising mixed-use
accommodation.

4ECONOMICS FOR MANAGERS
In the report, there is a specific section discussing flow of foreign direct investment in
Australia. Strong economic performance of Australia has made it hub for foreign investors. In
2016, foreign direct investment in Australia amounted to be USD 48bn. The commodity
boom in the world market is a significant determinant of expansion of foreign investment.
The resource rich nation successfully exploits the opportunity generated from the resource
sector with mining one crucial sector of the economy (Uribe and Schmitt-Grohe 2017). The
end of mining boom however caused a significant decline in foreign investment in the
respective years of 2014 and 2015. The economy quickly recovered from this situation and
successfully created opportunities for foreign investment.
Projects related to arts, recreation and business services contribute tourism expansion
by arranging different events. Projects in this segment amounts to be $14.8bn. Another
import part of tourism investment is the investment in aviation infrastructure. Some of the
important aviation infrastructure projects include Brisbane Airport domestic terminal
expansion and construction of parallel runway, Melbourne airport projects for construction of
third way and Perth international and domestic terminal upgrades and development of third
runway. Both capital cities and regional areas attract investment in aviation projects.
Tourism thus is a prosperous and progressive sector and experience an expansion in
both supply and demand. The growth in tourism industry is supplemented by growth of other
related industries.
Answer 2
Answer a
Tax is a compulsory payment made to the government. It is source of government
revenue. Government can impose a specific tax either on buyers or on sellers. The overall

5ECONOMICS FOR MANAGERS
impact of tax is same in both the cases (Baumol and Blinder 2015). The only difference is in
terms of its impact on respective supply and demand curve.
Figure 1: Impact of a specific tax on buyers of hotel accommodation
Figure 1 summarizes impact of specific tax on buyers of hotel accommodation. As the
market of hotel accommodation is assumed to be perfectly competitive the demand and
supply curve are of usual shape. The respective demand and supply curve for hotel
accommodation is given as D1D1 and S1S1. In the perfectly competitive industry equilibrium
is attained where demand and supply balanced together (Nguyen and Wait 2015). Before tax,
OQ1 amounts of hotel accommodation are available at a market price of OP1. In the free
market, consumer enjoys a surplus shown by the area a+b+c+d. The corresponding
producers’ surplus is given as e+f+g+h. Total surplus obtained from the sum of consumer and
producer surplus is obtained as a+b+c+d+e+f+g+h. Now, support government decides to
impose a specific tax of t on buyers. As the tax is imposed on buyers, the immediate effect is
on the demand curve. In response to the imposed tax, there is an immediate inward shift in
the demand curve by the tax amount. The tax creates a divergence between price paid by
buyers and that receives by the sellers (Friedman 2017). Buyers pay a higher price of PB
while sellers receive a lower price shown as PS. The equilibrium quantity of hotel

6ECONOMICS FOR MANAGERS
accommodation after tax falls to QT. Tax alters the surplus to consumers, producers and the
total surplus. Consumers now receive a surplus equivalent to only area a. Producers surplus
also falls to area f only. Part of the consumers and producers’ surplus are realized in the form
of government revenue (Cowell 2018). Government revenue because of the tax equals to area
b+c+e+g. There is net loss in total surplus shown by the area d+h. This indicates dead-weight
loss due to tax.
Answer b
The above analysis of effect of buyer’s tax show that there is a net welfare loss
resulting from misallocation of resources (Cowen and Tabarrok 2015). Any further increase
in tax would increase the area of deadweight loss and thus would further reduce social
welfare.
Answer c
The revenue to the government equals size of the tax times units of good sold. An
increase in tax shifts the demand curve to the left by a greater magnitude reducing demand by
a larger quantity. As a result, there will be further decline in the equilibrium quantity of
accommodation. The effect on government revenue depends on proportionate increase in tax
rate and that of proportionate decrease in equilibrium quantity (Mochrie 2015). Government
revenue increases if increase in tax rate is larger than the decline in equilibrium quantity.
However, if government revenue declines by a larger magnitude than tax rate, there will be a
decline in government revenue.
Answer 3
Tourism is one of most important industries in Australia having a massive impact on
the social, economic and cultural environment. Growth in tourism industry is mostly driven
by desire of people towards adventure and interest to explore places having natural and

7ECONOMICS FOR MANAGERS
cultural significance, intrigue and beauty (Dwyer et al. 2018) The contribution of tourism
industry in Australian economy can be evaluated in terms of its impact on Gross Domestic
Product, employment, export and investment.
The tourism industry has both direct and indirect contribution to the economy. The
direct contribution of the tourism corresponds to contribution to Gross Domestic Product of
Australia. The share of tourism in Australian GDP shows the internal spending and the
government spending in the concerned industry (Gardiner, Grace and King 2014). An
important aspect of investment spending in tourism include both current and future activity
such as investment in construction of new accommodation and investment in airlines
(purchase of new aircraft).
Direct contribution of tourism in Australia’s GDP amounts to be AUD 49.7 billion in
2016. In percentage term, tourism contributes 2.9 percent in nation’s GDP. This was
forecasted to increase by 4.0 percent in 2017 (wttc.org 2018). The contribution to GDP
comes from associated growth several related sectors of tourism such as hotel
accommodation, airline and other transportation and business of travel agents. Two other
sectors receiving direct support from tourism are leisure and restaurant industries.
Tourism industry has significant contribution on employment. Tourism and related
industries employ a considerably large number of people. The industry generated 545000
direct jobs in 2016. Tourism contribute 4.6 percent of total employment. The employment in
the tourism industry include jobs in hotels, airlines, travel agent and other passengers’
transportation service (McLennan, Becken and Moyle 2017). With expansion of tourism
sector, job opportunities also expand in activities related to leisure and restaurant industries.
Another direct economic contribution of tourism industry is in terms of visitors’
export. Australia generated nearly AUD 27.3bn from the visitors’ export in 2016. This is

8ECONOMICS FOR MANAGERS
expected to rise by 6.1 percent. The country is expected to attract 8813000 international
tourists in the coming years. The number of tourist arrival is forecasted to reach 14, 250,000
(Dwyer et al. 2014). With this, the expenditure generated from tourists expected to increase
to AUD40.9bn accounting an increase by 3.5% per annum.
Tourism also attract significant capital investment. In sector attracts capital
investment worth nearly AUD21.7bn. This is expected to increase in the next few years and
reach to AUD 27.6bn by 2027.
Tourism though has a positive effect on Australian economy there are however
several adverse impact on environment. The development of coastal strips creates ecological
problems in many beautiful beaches in Australia. In order to avail space for walking trails
many plants and shrubs are cleared from the rainforests (Ruhanen, Whitford and McLennan
2015). The recreational activities like four-wheel driving destroyed the many vegetation and
sand dunes of Australia. The biodiversity of the Great Barriers Reef has been adversely
affected by the recreational activities like bottom trawling in that place. Disposal of non-
biodegradable wastes in the seaside affects ecological balance of aquatic life. Many marinas
and seas walls are constructed for the benefits of tourists. This disrupts the capacity of natural
soil erosion in the aqua and estuarine environment. Increased crowd by larger number of
tourist visitors in Australia has generated significant waste management problem (Zhang
2015). Tourism industry thus has some negative effect on natural environment of Australia.
Considering the positive and negative impact of tourism industry in Australia from the
previous literatures, it is cleared that tourism has a long-standing impact on macroeconomic
environment of Australia. Increase in tourism investment thus might be considered as a
prudent macroeconomic policy for Australia as it not only contributes to an increased earning
for tourism and related industries but also creates employment in these industries (Woo, Kim

9ECONOMICS FOR MANAGERS
and Uysal 2015). When tourism and other related industry expand then the economy expands
as well. The macroeconomic impact of investment in tourism industry is described in the
following figure.
Figure 2: Effect of tourism investment in Australia
The figure above demonstrates impact of tourism investment using AD-AS
framework. The equilibrium in the economy occurs at the intersection of aggregate demand
and aggregate supply. Initially the economy is in equilibrium at point E. Corresponding to the
equilibrium, GDP and price level are determined as Y* and P* respectively. If additional
investment is made in the tourism industry, then the aggregate demand curve shifts rightward
to AD1. The new equilibrium is at E1 yielding a higher GDP and price level (Johnson 2017).
The expansion of tourism though is helpful for the economy but one should not ignore long
term negative effect of tourism on environment. The expansion of tourism should therefore
be undertaken in an eco-friendly manner.

10ECONOMICS FOR MANAGERS
Answer 4
The three global leaders in the world tourism market in terms of highest number of
visitors are France, Spain and United States.
France
France is one of the leafing destination of global tourism. The number of visitors in
France in 2014 was 83.7 million. In 2017, the number of visitors in France increased to 86.9
million. The objective of tourism ministry of France is to increase the number to 100 million
visitors by 2020 (Corne 2015). In the gross domestic product of France tourism, contribute
nearly 77.7 billion euros. Of this, the contribution of international visitors is 30 percent. Rest
of the 70 percent is contributed from spending in domestic tourism (thelocal.fr 2018). The
industry has significant contribution in the employment generation of France. The industry
generates more than 2 million jobs in France. This accounts 10.9 percent of employment in
France. The earnings from tourists also contribute to balance of payment of France. The
major tourist attractions of France are Paris, French Riviera, Provence, Loire Valley, French
Alps, Corsica and others. Realizing the importance of tourism for economic growth and an
important source of government revenue, government of France gives considerable attention
in development of strategy that can promote tourism in the country (gouvernement.fr 2018).
Several attempts of government in this direction include improvement of reception facilities,
adaption of a coherent tourism promotion strategy, development of digital technology,
encouragement of occupation in the tourism industry, adaption of strategy to promote tourism
investment and support towards policies that can support in showcasing product and regional
diversity.

11ECONOMICS FOR MANAGERS
Spain
In Spain, tourism is a well-established sector in the economy. The latest research on
tourism industry reveals that, the sector alone contributes nearly 16 percent of nation’s GDP.
In 2016, the number of visitors in Spain was over 75 million. This number increased to 81.8
million in 2017. Tourism is considered as one of the vital sectors of the economy in terms of
both size and buoyancy (Vila, Darcy and Gonzalez 2015). The sector also has ability to affect
other economic activities. The dynamic expansion of tourism in Spain has outstripped the
tourism growth of the global economy. The direct contribution of tourism in Spanish GDP
increased from 5.9 percent in 2010 to 6.4 percent in 2015. Besides this, businesses directly or
indirectly related to tourism create additional economic impact of the concerned industry
(Albalate and Fageda 2016). The economic contribution of Spanish tourism stands out even
higher than European average. Tourism has major implication for employment. The direct
and indirect employment amount to 2.5 million in 2015 accounting 13 percent of national
employment. Tourism in Spain is one of the most competitive industries in the world
(Hernandez, Suarez-Vega and Santana-Jiménez 2016). The key strengths of country’s
tourism sector include combination of cultural and natural beauty along with a good
infrastructure of transport and tourism service.
United State
In the United State, tourism industry is a large sector serving several domestic and
international tourists on yearly basis. Foreigners visit United State to view natural wonders,
historic landmark, cities and entertainment venues. Travel and tourism account 2.7 percent of
US GDP. The tourism industry of United State experienced rapid growth in terms of
expansion of urban tourism in the late nineteenth and early twentieth century (Aitchison et al.
2014). Tourism was established as a well-developed industry by 1850. The industry

12ECONOMICS FOR MANAGERS
progressed rapidly and recorded a marked shift in the same way as Americans organized,
perceived and moved. The growth of tourism industry was supported by significant
development of automobile and air travel (Peiro-Signes et al. 2015). The sectors however
badly affected by the attacks in September 11, 2001. The industry soon recovered and
remained as a leading industry of United State. Tourism is the largest employers in the 29
States of US. The sector employed 5.4 million people in 2013 (Otgaar, Van Den Berg and
Feng 2016). Tourism industry also received great importance in terms of its contribution in
government revenue and that of trade.
Recommendation to improve tourism in Australia
Tourism in Australia is an important economic sector contributing to national income,
employment and export earnings. There is however scope for further improvement to
promote Australia’s tourism in global market (Athanasopoulos et al. 2014).
The growth of tourism is subject to volume of investment in product, marketing and
infrastructure. Development of private investment in this regard needs a clear strategy,
quantifiable targets and accountability for associated performances. The tourism council in
Australia should develop should develop an appropriate business strategy and should take a
proper planning approach to fulfill tourism goals.
In the most frequently visited tourism regions, the tourism council should develop
destination plans through increasing efforts and investment priorities. Australia must focus on
its competitive advantage in tourism products and the source markets. Destinations that are in
the top priority requires development in terms of integrating marketing, branding, labor
markets, product development and infrastructural provision. The efforts in this areas also
need integration among Federal, State, Industry and Local efforts.

13ECONOMICS FOR MANAGERS
Combined effort of private and government agents can promote Australia as a highly
sought destination in global tourism.
References
Agenor, P.R. and Montiel, P.J., 2015. Development Macroeconomics Fourth
edition. Economics Books.
Aitchison, C., MacLeod, N.E., Macleod, N.E. and Shaw, S.J., 2014. Leisure and tourism
landscapes: Social and cultural geographies. Routledge.
Albalate, D. and Fageda, X., 2016. High speed rail and tourism: Empirical evidence from
Spain. Transportation Research Part A: Policy and Practice, 85, pp.174-185.
Athanasopoulos, G., Deng, M., Li, G. and Song, H., 2014. Modelling substitution between
domestic and outbound tourism in Australia: A system-of-equations approach. Tourism
Management, 45, pp.159-170.
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Nelson
Education.
Bernanke, B., Antonovics, K. and Frank, R., 2015. Principles of macroeconomics. McGraw-
Hill Higher Education.
Corne, A., 2015. Benchmarking and tourism efficiency in France. Tourism Management, 51,
pp.91-95.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Cowen, T. and Tabarrok, A., 2015. Modern principles of microeconomics. Macmillan
International Higher Education.

14ECONOMICS FOR MANAGERS
Dwyer, L., Forsyth, P., Spurr, R. and Ho, T., 2018. The Economic Impacts And Benefits Of
Tourism In Australia. [online] Sa.gov.au. Available at:
https://www.sa.gov.au/__data/assets/pdf_file/0014/162005/App_N_The_Economic_Impacts_
and_Benefits_of_Tourism_in_Australia_a_General_Equilibrium_Approach.pdf [Accessed 29
Dec. 2018].
Dwyer, L., Pham, T., Forsyth, P. and Spurr, R., 2014. Destination marketing of Australia:
Return on investment. Journal of Travel Research, 53(3), pp.281-295.
Friedman, L.S., 2017. The microeconomics of public policy analysis. Princeton University
Press.
Gardiner, S., Grace, D. and King, C., 2014. The generation effect: The future of domestic
tourism in Australia. Journal of Travel Research, 53(6), pp.705-720.
Goodwin, N., Harris, J.M., Nelson, J.A., Roach, B. and Torras, M., 2015. Macroeconomics in
context. Routledge.
gouvernement.fr., 2018. A tourism development strategy. [online] Gouvernement.fr.
Available at: https://www.gouvernement.fr/en/a-tourism-development-strategy [Accessed 29
Dec. 2018].
Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.
Hernandez, J.M., Suarez-Vega, R. and Santana-Jiménez, Y., 2016. The inter-relationship
between rural and mass tourism: The case of Catalonia, Spain. Tourism Management, 54,
pp.43-57.
Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.
McLennan, C.L.J., Becken, S. and Moyle, B.D., 2017. Framing in a contested space: Media
reporting on tourism and mining in Australia. Current Issues in Tourism, 20(9), pp.960-980.

15ECONOMICS FOR MANAGERS
Mochrie, R., 2015. Intermediate microeconomics. Macmillan International Higher Education.
Nguyen, B. and Wait, A., 2015. Essentials of Microeconomics. Routledge.
Otgaar, A.H., Van Den Berg, L. and Feng, R.X., 2016. Industrial tourism: opportunities for
city and enterprise. Routledge.
Peiro-Signes, A., Segarra-Ona, M.D.V., Miret-Pastor, L. and Verma, R., 2015. The effect of
tourism clusters on US hotel performance. Cornell Hospitality Quarterly, 56(2), pp.155-167.
Ruhanen, L., Whitford, M. and McLennan, C.L., 2015. Indigenous tourism in Australia: Time
for a reality check. Tourism Management, 48, pp.73-83.
thelocal.fr., 2018. 89 million tourists: Why France is still the most visited country on earth.
[online] Thelocal.fr. Available at: https://www.thelocal.fr/20180118/france-retains-crown-as-
most-visited-country-on-earth [Accessed 29 Dec. 2018].
Uribe, M. and Schmitt-Grohe, S., 2017. Open economy macroeconomics. Princeton
University Press.
Vila, T.D., Darcy, S. and González, E.A., 2015. Competing for the disability tourism market–
a comparative exploration of the factors of accessible tourism competitiveness in Spain and
Australia. Tourism Management, 47, pp.261-272.
Woo, E., Kim, H. and Uysal, M., 2015. Life satisfaction and support for tourism
development. Annals of Tourism Research, 50, pp.84-97.
wttc.org., 2018. Travel & Tourism Economic Impact Australia. [online] Wttc.org. Available
at: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2017/
australia2017.pdf%20 [Accessed 29 Dec. 2018].

16ECONOMICS FOR MANAGERS
Zhang, Y., 2015. International arrivals to Australia: Determinants and the role of air transport
policy. Journal of Air Transport Management, 44, pp.21-24.