Economics Assignment: Australian Economic Analysis and Policies

This economics assignment analyzes several key aspects of the Australian economy. Question 1 examines the impact of Middle East hostilities on petrol and passenger car markets, as well as the influence of electric vehicles. Question 2 assesses the impact of government initiatives promoting higher education on the labor force and economic growth, including a discussion of production possibility frontiers and determinants of economic growth. Question 3 explores the effects of sales tax on cigarettes and coffee, considering demand elasticity, and analyzes the market structure of Coles and Woolworths as an oligopoly. The assignment incorporates diagrams and economic principles to illustrate the concepts discussed, and provides references to support the analysis.

Passenger Car Demand
Petrol Prices
Question 1
(a)
Australia’s dependent on Middle East for oil is very much evident to all. Middle East is the
main source of oil for Australia. Any outbreak of hostilities in Middle East can cause major
disturbances in Australian oil supply which can lead to spike in oil prices and its cascading
effect on other sector of economy, like automobile industry’s heavy passenger car which is
run on Petrol. Any hostilities in Middle East can cause severe dent in sale of passenger car
demand which is run on petrol. Petrol is the complimentary good for Passenger car and any
rise in price of petrol will have negative impact of sale of Petrol passenger car. Australian
petrol car demand is already on decline due to prospect of Electrical Vehicle in
Australia(Lescaroux, 2010).
As you can see increase in price of petroleum product P to P1, decreases the demand of
passenger car from OQ1 to OQ. So it is evident that any increase in petrol prices decreases
the demand for passenger car.

(b)
Environment concern forced the scientific community to invent more environmental friendly
modes of transport, after years of hard work and innovation, electric vehicle come into
operational mode, for last few years and now gradually started picking up pace and becoming
more spread across various parts of the world. Electric vehicle production and uses started to
get momentum and Australia cannot remain isolated from this phenomenon(Taylor,
2009).With the news coming of release of electric car in Australia, it would certainly make
serious dent in the sale of petrol fuelled car, not only because newly launched electric car
will be cheaper but also it will be environment friendly with zero or very low emissions, and
will purely run on electric charge(Albrecht, 2009a). It will also save Australian people from
increasing fuel prices. Electric vehicle is certainly very good news for countries’ whose
dependence on imported oil is very high, even upto 80-90%(Hellenicshippingnews.com.
2019).
Demand for car run on petrol will slump, because neither it will be affordable to use nor it
will environment friendly, so people will shift to electric vehicle, demand of electric vehicle
will rise. In fact it impact is already started to show, as per the data released by the Federal
Chamber of Automotive Industries, that car sales to the end of July 2019 are 7.7% down from
the previous year(Ketchell, M. 2018).

Demand for petrol car
Demand for
Electric Vehicle
Quantity Electric vehicle impact on Petrol Car
Quantity
It can be seen in above diagram that with every rise in demand of electric vehicle demand for
petrol car is going down. Reasons are both electric cars are environmental friendly and no use
of fossil fuels in it, which reduces impact of rising petrol prise.
Question 2
a)
Australian government initiative to promote young people to go for higher study is an
encouraging sign for Australian economy. It will not only enhance their skill but also enhance
their knowledge base to be employed in more skilled and demanding job. This initiative of
government will produce lots of skilled workforce for Australian economy in future and their
dependence on foreign workforce will go down in coming years, henceforth, it will be
compensated bylocal skilled workforce, because of this step, taken by its government. Once,

more skilful people available for work in Australian economy than presently available skilled
people. It will shift the production possibility model (PPF) to outward to the right, because
now, economy will grow much faster than previously. More skilled people will produce more
services and production which will lead to growth in economic activities and employment
level in economy would also go up. These all activities ultimately lead to increase in income
and available facility in Australia. So, any increase in level of education and skill today will
lead to enhancement in employment growth, production growth, growth in skilled people for
Australian industry and services. Its impact on Australian economy will be very positive, it
will raise the output level because more educated and skilled people will produce more
production with the application of his higher knowledge and skill Robertson, A. (2019).
In following given graph it is clearly visible that production possibility frontier moved
rightwards with increase in more skilled person in economy, because now more people are
available with higher and better skills than earlier. IT will push the outpour and Gross
domestic products to new level towards right side of old PPF. It can be seen in below given
diagram:

A
B
C
More skilled people availability pushed the PPF towards rightwards; it will lead to more output
Production possibility Model
Labour Force
Level
of
Education
b)
Economic growth of a country can be determined with availability of following factor, in the
absence of these factors, it is almost impossible to attain economic growth in an economy in
long term, these determinants are:
 Natural Resources availability
 Human resourcesmanagement
 Capital goods availability
 Use of Technology
 Demand of available products
 Productive and Allocative efficiency

These are the main determinants of economic growth in long term period. If it is explained
further, it can be said that in the absence of any of these factors it will be hard to achieve
economic growth in a country. Let’s take it one by one.
For any economic growth to achieve it is important to have natural resources and human
resources both of them are basic things to economic growth. Natural resources needed for
production and human resources needed for employing people to produce through the use of
natural resources. Availability of capital goods, like machine, plant, heavy equipment for
production and proper and sophisticated technology to make use of all the capital goods,
human resources and natural resources. Above all determinants for economic growth are
equally important, because even absence of one of the above determinates can become
bottleneck in the progress of an economy, so, each of determinants are interdependent to.
Demand for all these produced goods in a domestic as well as in overseas market needs to be
created, so that created demand for products can easily be consumed in both the markets.
Besides, how these generated incomes are allocated among different factors of production,
means, equitable and justifiable allocation of products or generated income and services
among different section of society (Martin, L. 2019), so that all strata of people get benefited
from it.
In each of the above mentioned determinants for economic growth government active policy
initiative required without government active support in nurturing each of the mentioned
determinants, it would be almost impossible to take up the economy in hogher trajectory and
boost the economy. Government intervention required to be there it must be abovously
available.
Question 3
(a)
In an economy all types of people resides, rich, poor and very wealthy all have different
priorities and requirements, for some smoking cigarette is luxurious and for some it is normal
good. What type of product is depends upon the income and lifestyle of people in an
economy.

Y
XQ1Q
Demand for Coffee
P1
P
Price
Impact of Tax on Coffee
Impact of imposing sales tax on cigarettes will be different for different people. For rich
people it will not be that much difficult to pay some extra amount when buying cigarette for
smoking. For rich and wealthy, people it does not matter much about how much tax or which
taxes are being imposed on cigarettes, they will smoke like any other day. But the most will
be affected by the tax will be the middle class or people who lives in lower strata of society
with very low level of income.This section of society will be hit most and many of them will
stop smoking cigarette. If they keep smoking even after increase in taxes, it will increased
financial burden on them.
So impact will vary person to person based on their economic status in society.
If tax is imposed on coffee instead of cigarette, it will affect more people than in case of
cigarette. Cigarette in not smokeby majority of people and considered as very an harmful for
body, but acceptability of coffee in a society is more than cigarette, so obviously, increase in
taxes on Coffee will affect more people than if sales tax is imposed on cigarette, whose
demand is not that much elastic. Price elasticity demand of Cigarettes is less elastic than price
elasticity of demand of Coffee which is more elastic as given in flowing diagram for coffee
and Cigarette. Increase in tax has more impact in Coffee than in Cigarette. Cigarette demand
reduced less than demand for coffee.
Sales Tax on Coffee and Cigarette

X
Y
Demand for Cigarette
Q Q1
P
P1
Impact of Tax on Cigarette
Price
Both the above diagram is self explanatory, as you can see, that demand of coffee impacted
more than demand of Cigarette because, demand of coffee is more elastic to change in its
price, whereas demand for Cigarette is less elastic or more inelastic than coffee.
b)
Coles and Woolworths will be categorised in Oligopolistic market structure. They are not in
very large number they are very few but they are not even full monopolistic market structure.
It is an Oligopolistic sales product which is very close substitute to each other. Price set by
one form generally assumed as market price and accepted by all the market participants.
These types of supermarket presence in Australian market is because of its size and capital
investment required for these kind of market structure. Supermarkets are such a huge in size
required large investment whichcan is borne only by a few big investor or established
business man, who can make entry in this type of Oligopolistic market structure.
Characteristic of oligopolistic market:
Interdependence: Oligopolistic market dependent upon activities of other firm
Advertising: Advertising is the way to influence the market and increases the sales.

Competition: Among its rival firm there is fierce competition exists.
Entry barrier: It is not easy to enter in to market due to high capital cost and government
regulation.
Lack of Uniformity: Products are not uniform in this type of market.
Price Rigidity: It is very difficult to alter price due the fact that increase in price may not
follow by rival and sales may fall or decrease in price may be followed by all, so price remain
fixed.
No pattern of pricing behaviour: It is very difficult to observe in this type of market any
specific pricing behaviour, some time rival firm certainly decrease the price, which has to
follow by all.
Indeterminateness of Demand curve: It very difficult to draw demand curve due to other
firm action.

References
Albrecht, A, Holyoak, N M, Pudney, P, Raicu, R, Taylor, M A P, Zito, R and Groves, J (2009a)
Uptake and use of electric vehicles in Australia. Technical report M3, Project on planning for electric
vehicles in Australia. AutoCRC, Melbourne
Taylor, M., Pudney, P., & Zito, R. (2009). PLANNING FOR ELECTRIC VEHICLES IN
AUSTRALIA – CAN WE MATCH ENVIRONMENTAL REQUIREMENTS, TECHNOLOGY
AND TRAVEL DEMAND?. Retrieved 25 September 2019, from
https://www.atrf.info/papers/2009/2009_Taylor_Pudney_Zito_Holyoak_Albrecht_Raicu.pdf
Lescaroux, F. (2010). The petroleum market: The ongoing oil price “shock” and the next “counter-
shock”. Retrieved 25 September 2019, from https://www.cairn.info/revue-economie-internationale-
2010-1-page-99.htm
Ketchell, M. (2018). Australia imports almost all of its oil, and there are pitfalls all over the globe.
[online] The Conversation. Available at: https://theconversation.com/australia-imports-almost-all-of-
its-oil-and-there-are-pitfalls-all-over-the-globe-97070 [Accessed 20 Sep. 2019].
Martin, L. (2019). Australia urged to move away from oil dependency or risk fuel supply crisis.
[online] the Guardian. Available at:
https://www.theguardian.com/australia-news/2019/jul/17/australia-urged-to-move-away-from-oil-
dependency-or-risk-fuel-supply-crisis [Accessed 20 Sep. 2019].
Hellenicshippingnews.com. (2019). Analysis: Australia unlikely to build new oil refineries despite
heavy import dependence | Hellenic Shipping News Worldwide. [online] Available at:
https://www.hellenicshippingnews.com/analysis-australia-unlikely-to-build-new-oil-refineries-
despite-heavy-import-dependence/ [Accessed 20 Sep. 2019].
Robertson, A. (2019). The US has 700 million barrels of oil in reserve. We've got 18 days of petrol,
22 days of diesel and 23 days of jet fuel. [online] ABC News. Available at:
https://www.abc.net.au/news/2019-09-19/australia-remains-vulnerable-to-running-out-of-fuel/
11527492 [Accessed 20 Sep. 2019].