Business Economics Assignment: AD/AS Model and Economic Factors

This business economics assignment analyzes the effects of various economic factors on the Australian economy using the Aggregate Demand/Aggregate Supply (AD/AS) model. The assignment examines how increased worker productivity, favorable weather conditions in agriculture, government tax reductions, and improved trading partner values impact output, price levels, and overall economic performance. Each scenario is graphically represented, illustrating shifts in the AD or AS curves and their subsequent effects on GDP and inflation. The analysis includes references to relevant economic literature to support the findings.

Running head: BUSINESS ECONOMICS
Business economics
Name of the student
Name of the University
Author note

1BUSINESS ECONOMICS
Table of Contents
Question 1:.......................................................................................................................................2
Question 2:.......................................................................................................................................3
Question 3:.......................................................................................................................................4
Question 4:.......................................................................................................................................5
Reference:........................................................................................................................................6

2BUSINESS ECONOMICS
AS
AD
Y
P
E0
P1
Y1
P0
Y0
AS1
E1
Question 1:
Productivity of the workers is one of the main factors that can alter the total goods and
services produced by an economy. If the productivity of the workers in Australian economy is
enhanced, then it will lead to higher amount of output, resulting in reduction of price (De Melo
& Robinson, 2015). Considering that, with fall in price, there will be no change in Aggregate
Demand (AD), there will be a rightward shift of the AS curve leading to better economic
performance and higher GDP.
Figure 1: Effect on productivity enhancement on AD/AS model
Source: (Created by Author)
Figure 1 shows the effect of productivity enhancement with the help of AD/AS model
graphically. From the picture it can be seen that initial equilibrium occurs at E, however with rise
in productivity, AS shifts to AS1 resulting a reduction in price and enhancement in output.

3BUSINESS ECONOMICS
AS
AD
Y
P
E0
P1
Y1
P0
Y0
AS1
E1
Question 2:
Considering the given situation, it can be stated that favourable weather condition in
Australian agriculture will help the country’s economy to have better productivity and higher
rate of growth (Behera et al., 2018). With adequate water and favourable weather condition,
firms can produce higher output leading to a reduction in price and enhancement in Aggregate
Supply (AS).
Figure 2: Effect of favourable weather condition effect on AD/AS model
Source: (Created by Author)
Figure 2 states the phenomenon graphically, where shifts of AS curve represents rise in
productivity of agricultural firm owing to favourable weather condition. Rightward shift of AS
curve denotes a lower price level and higher output, compared to the initial equilibrium price and
output level.

4BUSINESS ECONOMICS
AS
AD
Y
P
E0
Y0
E1
Y1
AD1
P1
P0
Question 3:
If the government reduce the business tax, then it will enhance the amount of disposable
income to the Australian citizens. Considering the AS in short-run constant, with rise in
disposable income, there will be rise in AD, which will lead to better productivity with a higher
price, leading to inflation in the economy (Serrato & Zidar, 2016).
Figure 3: Reduced business tax effect on AD/AS model
Source: (Created by Author)
Graphical representation of the phenomena has been portrayed in figure 3, where the
rightward shift of AD curve denotes rise in Aggregate Demand due to tax cut. Above figure
entails, that shift of AD curve highlights the rise of price as well as rise of output too.

5BUSINESS ECONOMICS
AS
AD
Y
P
E0
P1
Y1
P0
Y0
E1
AS1
Question 4:
Trading partners are one of the important parts of any business. If there is improved value
of the trade partners, then it will enhance the AS of the goods and services produced by the
Australian firms (Christopher, 2016). Figure 4 depicts the phenomena graphically, where the
rightward shift of AD curve denotes fall in price and rise in output, leading to higher GDP on the
account of Australian economy.
Figure 4: Effect of improving trading partner value on AD/AS model
Source: (Created by Author)
In this regard, it is necessary to remember that in short run, AD does not change and there
is almost no elasticity of demand.

6BUSINESS ECONOMICS
Reference:
Behera, C. R., Santoro, D., Gernaey, K. V., & Sin, G. (2018). Organic carbon recovery modeling
for a rotating belt filter and its impact assessment on a plant-wide scale. Chemical
Engineering Journal, 334, 1965-1976.
Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
De Melo, J., & Robinson, S. (2015). Productivity and externalities: models of export-led growth.
In Modeling Developing Countries' Policies in General Equilibrium (pp. 43-70).
Serrato, J. C. S., & Zidar, O. (2016). Who benefits from state corporate tax cuts? A local labor
markets approach with heterogeneous firms. The American Economic Review, 106(9),
2582-2624.