Understanding Price Elasticity of Demand and the Impact of Protectionist Policies on Australian Businesses

This article discusses the concept of price elasticity of demand and its impact on businesses. It also examines the protectionist policies of Donald Trump and their impact on Australian businesses. The article critically examines the importance of comparative advantage in the current economic scenario.

Running head: QUESTIONS 0
STRATEGIC MANAGEMENT
NOVEMBER 26, 2018
student details:

QUESTIONS 1
Answer to Question 1:
Introduction
In the general meaning, economics is the study of manufacturing, supply, and
consumption and may be categorized in two wide areas of learning: microeconomics and
macroeconomics. Macroeconomics deals with comprehensive financial measures, like
general output and general revenue. Macroeconomics has its roots in microeconomics, which
deals with market and decisions making of particular economic parts, including customers
and business. Microeconomics is the rational starting stage for the education of economics.
The study highlights the essential matter in microeconomics; demand and supply study. The
demand and supply examination is study to elaborate the process of interaction by purchasers
and traders to decide the price and quantity of transaction. The price concurrently reflects the
value to purchaser of the following (or marginal) units and the price to the trader of the units.
In private enterprise market economy, which is the main apprehension of investment
forecasters, demand and supply analysis contains the most fundamental set of microeconomic
devices. Some significant factors affect the level of demand in direct or indirect manner to the
small changes in the price.
In the following parts, price elasticity, demand elasticity and inelasticity of the
demand, factors to determine the price elasticity of demand and impact of each factor on
demand for goods or services, is discussed.
Analysis
Price Elasticity of Demand is macroeconomic expression, which measures
relationship between the change in price and change in demand for the goods and services. It
shows how change in price of good will influence whole demand of good. Elasticity can be

QUESTIONS 2
described as elastic or very responsive unit elastic, or inelastic; not very responsive. Price
elasticity of demand can be measures as below-
Pr
ice elasticity of demand
Elasticity can be categorised in three types; elastic, unitary and inelastic. In elastic
demand or elastic supply, the elasticity is greater than one, stating the high sensitivity to
prices changes. In inelastic demand or inelastic supply, elasticity is less than one, stating low
sensitivity to change in prices. Unitary elasticises state comparative reaction of either demand
or supply. When change in demand of product does not relate strictly to change in other
factors, demand is measured to be inelastic. When the price elasticity of demand is zero, then
demand is perfectly inelastic.

QUESTIONS 3
Perfectly Inelastic (when PED=0)
If percentage of change in demand is less than percentage of change in price, then
demand is inelastic
Inelastic (When PED is between 0 and 1)
When the percentage of change in demand is the same as the percentage of change in
price, then the demand is unit elastic.

QUESTIONS 4
Elastic (when PED=1)
If percentage of change in demand is more than percentage of change in price, then demand
is perfectly elastic.
Perfectly Elastic (when PED>1)

QUESTIONS 5
In economics, supply and demand, relation between quantities of commodities, which
manufacturers desire to put up for sale at unlike price and number, which customers want to
purchase (Jing, Yu & Vniversity, 2016).
Sources taken from: Encyclopedia Britannica, Inc.
Demand curve-
The number of the demanded commodities depends on price of the product and
potentially on various more factors, like price of other products, income, and customer’s
choice, and periodic influences (Zhou, et. al, 2016). The combination of price-quantity may
be designed on the curve that is known as demand curve, with price showed on perpendicular
axis and quantity showed on parallel axis. Demand curve is usually the downward sloping,
showing the desire of customers to buy additional commodities at low price level. The
variation in non-price factors will be the reason to shift in demand curve, while changes in
commodity’s price may be tracked all along the stable demand curve.

QUESTIONS 6
Increase in demand
Illustration of increase in equilibrium price (p) and equilibrium quantity (q) due to shift
in demand (D)
Sources taken from: Encyclopedia Britannica, Inc.
Supply curve-
The number of the supplied commodities, depends not only on price accessible for
commodities however also on possibly various more elements, like price of substitute goods,
manufacturing technologies, and accessibility and labor cost and other elements of
manufacturing. The price-quantity combination can be made on the curve, refers as
the supply curve, with price showed on the perpendicular axis and quantity represented on the
straight axis. The supply curve is generally upward sloping, showing desire of manufacturers
to sell extra commodities they make in the marketplace with high price. The modification in
non-price elements will cause the shift in supply curve, where modifications in price of
commodity may be tracked by the side of unchanging supply curve (Scheibe, 2018).

QUESTIONS 7
Decrease in supply
Illustration of increase in equilibrium price (p) and decrease in equilibrium quantity (q)
due to shift in supply (S)
Sources taken from: Encyclopedia Britannica Inc.
Market Equilibrium-
The market equilibrium is marketplace’s operation to compare demand and supply
throughout price mechanism. However, when purchasers desire to buy additional goods than
obtainable at the current price, they will be inclined to offer the increased price. In the case
where, they desire to buy less than is obtainable at the current price, dealers would offer
decreased price. Therefore, there is the leaning to go toward stable price. This inclination is
considered as the marketplace instrument, and the ensuing stability between demand and
supply is known as the market equilibrium (Cook, 2017). Since price increases, quantity
proposed normally raises, and the desire of customers to purchase the good usually decreases,
however these modifications are not essentially relative. The assessment of reactions of
supply and demand to modifications in price is called the price elasticity of demand or
supply, considered as fraction of proportion vary in quantity supplied or demand to

QUESTIONS 8
proportion vary in price. Therefore, when commodity’s price reduces by 10% and sale of
goods accordingly rise by twenty percent, afterwards price elasticity of demand for the good
is supposed to be two (Leese & Brison, 2018).
The good’s requirement, which have willingly obtainable substitute, is probable to be
flexible, that signifies that this would be more approachable to alterations in good’s price.
This is because customers may simply substitute the goods with other, when the price
increases (Wunder, 2015). The product’s demand can be inelastic but there are no secure
substitute and if expenses on good make only the little portion of the earning of customers.
The firms faced with comparatively inelastic demand for the goods can raise the complete
income by increasing prices; those featuring the elastic demand may not. The evaluation of
demand and supply can be applied to marketplaces for the final service and product or to
marketplace for work, assets and more elements of manufacturing. This may be applied at
firm level or industry level or at aggregate stage for complete wealth or financial system
(Azevedo & Leshno, 2016).
Market Equilibrium
Factors affecting price elasticity of demand and impact of factor on demand for good and
service-

QUESTIONS 9
These are seven major factors, which influence price elasticity of demand-
1. Nature of product:
The elasticity of demand is based on nature of product, like whether the product is
essential or the luxury product. The elasticity of demand for essential products is
comparatively small. For an instance, if the price of this product increases, its purchasers
normally are not capable to decrease the demand. Yet again, if price of the essential product
decreases, the purchasers may not significantly raise the purchase of products, as the product
is the requirement or need, they had been buying the necessary quantity at last price
(Christopher, 2016).
2. Availability of alternative products
If close substitute for the specific product are present in marketplace, afterwards the
product’s demand will be comparatively more expandable. For an instance, since tea is the
close alternative of coffee in the marketplace, the increment in the coffee’s price will result in
the substantial descend in the demand and the consequential increment in demand for tea?
Consequently, demand for coffee will be comparatively more expandable because of
accessibility of tea (Landry, et. al, 2016).
Yet again, on the other hand, if price of coffee falls, after that individuals may decrease
the use of tea and they may significantly enhance the use of coffee.
3. Quantity and Variety of Use of Product
The more quantity and variety of use of the product, the more will be the elasticity of
demands. One the product is power, which is used in various manners. This is the reason that,
when price of electricity decreases or increases, the demand will rise or reduce in the uses,

QUESTIONS 10
and so, in entirety, the demand would fall or rise significantly, providing the high value of
arithmetical coefficient of price-elasticity of demands.
3. Percentage of earnings Spent on product
The price-elasticity of demand for the product is based on the percentage of the earning
the purchasers use on product. However, the purchasers use the small percentage of the
earning, after that; they will not significantly reduce the buy of the product as its price rises.
Conversely, as the purchasers use the little portion of the earning on product, they purchase
the product more or fewer according to the necessity at the specific price. For that reason,
when price of product falls, they do not significantly rise the buying. This is resulted then that
if purchasers use the little amount of the earning on the products, then the price-elasticity of
demand will be moderately little. Alternatively, if they use the huge part of the earning on the
product, then the elasticity of demand will be comparatively high.
4. Role of Habit of people
There is the important role of habit of individuals in deciding the scope of the elasticity of
demand for the product. From time to time, some individuals totally surrender to the use of
article of habit such as drug, drink and tobacco goods. Therefore, if price of the products rise,
demand for them do not reduces significantly and so the elasticity of demand would be
comparatively little.
5. Chance of deferment of use
When the purchasers are capable to suspend the buy or use of the products, if necessary,
then this will have the comparatively higher elasticity of demand. Therefore, if the price
increases, the buying will be delayed and the demand will decrease, and if the price falls, the
deferred demand will show in the marketplace (Arbieu, et. al, 2017).

QUESTIONS 11
6. Price of products
The elasticity of demand for the product is based on an individual price. Because prices
change, number demanded of products change, due to the demand law. In addition, at various
price of the goods, like at various stages on the demand curve for the product, the coefficient
of price-elasticity of demand for product will be dissimilar. Usually, lesser the price of the
product, fewer is elasticity of the demand (Wolff, Schulp & Verburg, 2015).
Conclusion
As per the above analysis, it can be said that the supply and demand is financial
model of price determination in the market in microeconomics. It proposes that, holding all
equal, in viable marketplace, the unit price for the specific good, or other traded item like
labor or liquid financial asset, would vary until it settles at stage where number demanded (at
present price) will equal the quantity supplied (at present price), resulting in financial
stability for price and amount performed. The elasticity is the degree of demand curve and it
is reaction to the price. The more affected by price, the more elastic, significance the price
desiring to be paid would not differ so much from normal. The little increment in the price
can cause size demanded to reduce by the large amount and the minor reduction in prices can
cause number demanded to rise by the great amount. The inelasticity happens when demand
for the products or services is not affected by the price. The services and products are
considered extremely variable if even the small changes in price leads to the severe changes
in quantity supplied or demanded.

QUESTIONS 12
Answer to question 2:
Introduction
Donald Trump has succeeded over Hillary Clinton after the long movement for the
government of USA. The financial market of USA has been improved. For the followers of
Donald Trump, Donald Trump states the opportunity to shake the system, which various
citizens of USA feel has improved dissimilarity and compressed standard of living. For less
satisfied shareholders or depositors, there are fears Donald Trump’s anti-globalization
approach would spread protectionism in the globe, put up commerce obstacles and restrain
global economic development. Moreover, marketplaces do not like unknown and with
Donald Trump leaving to the White House, they are functioning with the complete beginner
to government. The management of Donald Trump is extensively predictable to score a
different approach from the policy of individual Republican Party as well as the outgoing
democrats.
In recent times, the protectionist approach raised. On 6July 2018, The USA imposed
the twenty-five percent duty on 34 billion$ of import of China, as China directly reacted with
twenty-five percent tariff on agriculture produces and motors of USA. The USA is at present
evaluating tariff on more sixteen billion $ value of products of China, and Donald Trump has
stated in recent periods that he can increase tariff to almost all imported products of China. In
the following parts, the protectionist policies of Donald Trump, impact of protectionist

QUESTIONS 13
policies on Australian businesses, and the importance of comparative advantage is discussed
and critically examined.
Analysis
It is not just the agriculture area of Australia, which has place to get. Other USA
export slugged with twenty-five percent tariff by China is crumb aluminum that is dissolved
and recreated in Chinese furnaces, NPR reports. Australia has showed the export of such
waste resources increase piercingly while year 1990. According to the ABS, in year 2012,
China was big commercial partner for waste exported goods, taking about six hundred
million dollar worth or thirty one percent of the waste metals export,. The states of Asia are
also the huge importers of metal or coal that is used in explosion of furnace to make steel.
With USA levying the twenty-five percent tariff on steel trades from China, the states of Asia
can determine to source more of the met coal from somewhere else. As the Australia is top
coal exporter of world, so it could obtain the reward (Swedberg, 2018).
Chris Richardson from Deloitte spoke Sky in recent period that the full-blown
commercial war “would not be attractive” for an Australia, in spite of the calculations of
media of USA. It is warned by Richardson that this will be “malicious” but “not end of
earth”, forecasting the hit to economy of China can take between 1 and 2 months’ normal
progress out of economy of Australia.
Moreover, it can be the difficult harmonizing act, particularly after state media of
China just initiated the direct stand against Australia, accusing people of being the “anti-
China pioneer” above the role on the South China Sea. Kevin Rudd has also assaulted
approach of Mr Turnbull to the state of Asia, reproving the Government of “blowing hard and
soft” at period while “people do not know what prospective rule would be”.

QUESTIONS 14
The primary American policy is opening new door for Australia as China and
countries of Asia turn away from USA. The Australia is trapped in middle of the complex
relationship. China has grown to be big and most significant trade partner of Australia as the
2nd large economy continue to raise at quick speed. Canberra has functioning hard to make
stronger ties of Australia with Asia without estranging the close helper in USA in random
days of management of Donald Trump. Australia stayed part of trans-pacific partnership
commercial transaction after USA pulled out and has developed Australia-China Free Trade
contract.
It is very difficult period for world, with stock declining for the second day on
Tuesday amid jitters about Chinese-USA tension and rising inspection of tools company. The
depositors are worried it enhances risk of the broad disagreement, which may sadden
international trade. Whatsoever happens, Australia can play the critical role, and requires
attaining these rights(Ezeani, 2018).
Short-term Impact on economy of Australia
Above the short-term, there would be limited influence on the businesses of Australia,
as long as Australia is not aimed in direct manner(Irwin, 2018).Certain Australia was
excluded from the scope of steel tariff and aluminum tariff. The truth is that USA really has
the commercial surplus with Australia; Australia is improbable to be aimed by the USA
almost immediately. Furthermore, the large number of products exported to USA are
consisted by the USA-Australia Free Trade Agreement. If we look at the financial market,
this shows the same scene, with S&P two hundred index at the five years higher(Kim,
2018).This shows that the marketplace is not upsetting so much regarding the commercial
war (Fligstein & Calder, 2015).

QUESTIONS 15
In fact, Australia may stand to advantage from commercial war between China and USA. The
primary list from China aims agriculture goods of USA, involving soybean, wine and meat.
Australia is well located to give alternative for the claim.
Long-term impact on economy of Australia
The long-term influence on commercial policy of Donald Trump on business of
Australia is vaguer. This is based on whether the present protectionism strategy is used as the
device of negotiation over trade or the management of Donald Trump means to apply it in
long run. When people do not come back to compromise table and the commercial fight
extended, this would finally hit the financial system of both side, and slow down the
international financial development. This also takes more ambiguity in the world. Business
does not like uncertainty and would most probable cut back investment. For Australia, this
probability refers the low demand and price for the commodities export. The Minerals and
fuels report for 45% of the total export of Australia in the financial year 2017.
However, this is very probable that the USA would not burn down the present foreign
commercial system it led to develop. First, previous experience has stated that tariffs do more
damage than product to the financial system. This does not protect the industry it means to
and customers finally make payment for price. Second, there is the risk, which raised
commercial war would initiate to weight on solid functioning economy of USA, which would
have adverse influence on the future middle elections. Third, as per the Deutsche bank, USA
in fact has the commercial surplus of 1.4 trillion dollar when both commerce directly and the
sale of international company is considered. This is in fact advantaging from globalization.
Consequently, this is complex to image the USA would take the complete scale protectionism
strategy above the long term. It is more likely that Trump is making use of tariff to discuss

QUESTIONS 16
great deal on commerce and more things. If it is matter, the influence on businesses of
Australia is limited (Parnreiter, 2018).
The lessons of Western Australia
The threat that absorbed the planet a decade ago in the time of the financial crisis is
still fixed in various memories, and the years that followed taken rising joblessness, debt
crisis, and financial depression. By contrast, the location where gross local good will
increase in the upcoming 8 years and where joblessness will decline. Until now, it was
precisely the experience of large state of Australia, Western Australia. The area has high
income per capita than USA, approximately seventy thousand dollars, a stunning feat. From
the last fifteen years, the staggering four hundred billion dollars of private venture run in the
mining and energy industry of state, expanding export facility for good like iron ore. Most of
those export, Donald Trump would adore this, are traded to China, totaling approximately
forty five billion dollars per annum (Bailey, et. al, 2018).
There is an advice for the citizens of Australia in the fairytale, too. For most of twenty
century, the economy of Western Australia suffered in the protectionist policies Australia’s
central government used to prop up production in other state. Tariff on car hits rates as high
as one hundred forty three percent, pushing high price onto customers(Sheldon, Chow &
McGuire, 2018). Nowadays, various businesses of America believe hard line tariff of Donald
Trump would influence the accessibility of daily use items like tools of gardening. Perhaps
the nastiest commercial policy of America was the restriction on iron ore export, made to
encourage domestic steel producers that presented for two decades until it was lifted in year
1960.
Australia regularly leveled down the protectionism, and that was not without costs,
the nation does not manufacture cars anymore and employ has stirred from built-up in

QUESTIONS 17
the healthcare and education. Nevertheless, how is it for sarcasm: the big mining firms of
Western Australia are world leaders in mechanization of transport?
Is comparative advantage important?
The very significant idea in the financial theory, comparative advantage is the basic
tenet of the disagreement that all performers, at all periods, may equally advantage from
collaboration and intentional deal. This is also the opening standard in the foreign
commercial theory. Automation frequently takes concern of work loss, so far the mining
industry is hiring more individuals than this did the period ago. Using the member of team in
most creative manner possible, rather than in ineffective industry that need security,
undergirds good standards of living(Cheng, 2018). In swap for iron ore, Australia may
purchase the huge number of international produced cars than it will have capable
to economically produces itself.
The international capital was also critical for financial success of Western
Australia. Latest gas projects backed by USA energy business Chevron show as example,
they have invested about eighty billion$. One of these assignments, Gorgon, is expected to
make $1 trillion of productivity for Australia above the lifetime. The primary capital can
never sensibly be made in the nation with the small portion of twenty five million. However,
without international venture, the gas sources will never be closed, and with no free
commerce, they will never be used. The supply chain is worldwide capital of America and
Aussie labor fulfill the demand of Asia (Laursen, 2015).
Donald Trump requires accepting that not every country may do all thing and in the
correct manner. Thus, why will not a nationalistic nation make focus on what this nation does
good and what may produce the high living standard for the own individuals? In spite of the
tax reform attainments, Donald Trump is merely not correct on commerce. As the remaining

QUESTIONS 18
countries move on, seeking more manners to work jointly for income or benefit, USA is
seeing to the history. If Donald Trump carries on to take economy of USA back in period
with the dated protectionist policies, he will use a twist of expression from the gentleman
himself.
Conclusion
As per the above analysis, it can be said that the large economy of the world is rapidly
moving to the protectionist position in the foreign commerce. The protectionist policy is the
policy, which gives the unreasonable benefit to the domestic industry against the global
rivalry. The practices have the great past in economic system. The protectionism is also the
great concept when making deal with newborn industries. This provides great period to a
company to make investment in the manufacturing facilities, staff skill and attain the faith of
local customer before the state marketplace at last opens to global contestants. The most
possible manner that policies of Donald Trump can advantage the economy of USA, while, is
simply by posing the probable fear to commercial partner of USA. Once the outrage against
the protectionist hazard subsides, various nations would be happy to lift the personal forms of
protectionism against the goods of USA and sign commercial deals more positive for USA
export (Lieberman, et. al, 2018).

QUESTIONS 19
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QUESTIONS 20
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QUESTIONS 21
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