Economics: Analyzing Australia's Energy Market Structure & Policy

This economics assignment provides a detailed analysis of Australia's energy market, focusing on its market structure, the behavior of large energy firms, and the concept of market failure. It investigates the characteristics of the Australian Energy Market, operated by the Australian Energy Market Operator (AEMO), and evaluates the price and output behavior of energy firms. The assignment also explores the meaning of 'market failure' and selects Australia's Environmental Policy as a case study, describing its instruments and evaluating its success or failure. Furthermore, it examines the impact of rising coffee bean costs on coffee prices and analyzes the pricing strategies of companies like J.M. Smucker Co. The assignment concludes by discussing the optimality of price slashing for retaining market share, suggesting alternative strategies like advertising and value enhancement. Desklib offers a wealth of similar assignments and resources for students.

0Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author note

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Table of Contents
Answer1...........................................................................................................................................2
A..................................................................................................................................................2
B...................................................................................................................................................3
Answer 2..........................................................................................................................................3
A..................................................................................................................................................4
B...................................................................................................................................................5
C...................................................................................................................................................5
Answer3...........................................................................................................................................6
A..................................................................................................................................................6
B...................................................................................................................................................6
C...................................................................................................................................................7

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Answer1.
A. The Australian Energy Market Operator operates Australia’s gas and energy markets
which also consist of the two types of market, one is National Electricity Market and the other is
Wholesale Electricity Market. The Council of Australian Governments were behind the creation
of The Australian Energy Market and was developed under the guidance of Ministerial Council
of Energy. Energy is bought and sold in the National Energy Market which is a wholesale
market is a wholesale market which supplies electricity to the retailers in Queensland, Victoria,
New South Wales an d the other parts of Australia( Australian Energy Market Operator, 2018).
The National Energy Market The retailer then usually buys energy from NEM and the consumers
then buy it from them (Burby et al., 2013). When the demand for energy will be high then the
market price for energy will subsequently go up. The grid though transport energy it does not
store it. It has been noted that when Australia experiences extreme hot weather, there can be a
result of strain on the grid and there had been a setting up of AEMO for this reason (McConnell,
Forcey & Sandiford, 2015). The electricity generators each day usually bids to AEMO. The
dispatching process of this kind turns out to be one of the most effective generation mix. The
Australian Energy Market operator started its operations on 1st July 2009. Establishment of
Short Term Trading Market for Gas is responsible for AEMO.

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Figure 1: Wholesale price of electricity and gas
(Source: Council &Whitlock, 2018)
B. The energy price in Australia usually tends to rise when the demand. The prices of
electricity can hamper the Australian business which is also a leading affecting the politicians
and business. The power system of National Energy Market is the longest interconnected power
system. It runs from Port Douglas in Queensland to Port Uncoln (Australian Energy Market
Operator, 2018). As storing electricity for future use is not possible, therefore there is dynamic
variation in demand. Providing genuine infrastructure to the wholesale market is one of the main
objective of Australian Energy Market Operator. The wholesale electricity market is the power
system in Western Australia (McConnell et al., 2013). The trading in wholesale electricity is
known as spot market real time demand and supply instantly matches through a centrally
coordinated dispatch process. By the year 2005, National Electricity of Laws and Rules replaced
the National Electricity code.
Answer 2. Market failure arises when there will be absence of efficient distribution of
services and also goods in the free market. Market failure also leads to net loss in social welfare

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when allocation of goods and services in a free market is not at all efficient. According to Milton
Friedman it is not necessary that market failures should always be solved by government attempt
because the government failure cost might worsen. As public goods can be both non excludable
and non-rival therefore market failure exists because self-regulatory organizations intervene in a
particular market. Subsidies, wage and price controls and taxes can also lead to resource of
allocation which is inefficient are some of the Government policy interventions.
The Environmental Policy of Australia is one such government policy which affects the
environment.
A. Policy: The Department of Social Services In Australia promises to integrate in the
activities a sustainable workplace practise in order to improve environmental practises (Ford,
Steen & Verreynne, 2014). The main priorities include minimising consumption of water and
minimising of energy, minimisation of waste generated and also relevant information
communicated within the Department in order to facilitate strong environmental structure.
The main objectives of The Environmental Policy are:
 To prevent pollution
 Environmental Management System should be maintained.
 Carbon footprint is to be reduced
 Environmental aspects and impacts has to be continuously reviewed.
 The principles of Ecologically Sustainable Development and Intergenerational
Equity should be in uphold.

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B. Australia’s Environmental Policy can be implemented by
 Maintaining, developing, implementing and reviewing periodically of the
Environmental Management System.
 Development of Annual Environmental Action Plans
 The staffs and library users are needed to be informed along with the
contractors and the public about the Environmental Policy and the
Environmental Management System
One of the most important policy mechanisms in order to achieve environmental
protection goals are Market based instruments. Environmental issues has been one of the
concerning issues in Australia for the last twenty years (Ford, Steen & Verreynne, 2014). The
National Action Plan for Salinity and Water Quality, The National Heritage Trust and the
Council of Australian Government’s focuses on water problems in Australia. The changing
attitudes of the Australian community has been the motivating forces behind these policy
(Tietenberg & Lewis, 2016). The Australian Petroleum Production and Exploration Association
have identified acts which will affect the gas and oil industry positively.
C. The policy makers of Australia had ignored Australian climatic, environmental,
ecological and physical limitations and because for this reason, the consequences have been
terrible and the nations ecological system gets badly affected (Dovers, 2013). Using excessive
amount of water of Murray-Darling river, destruction of forests by cutting of wood, clearing of
forests and land for agriculture impacted the ecological system negatively. Environmental
success or failure does not only depend on the Australian environment but also depends on the
problem of ecology. The interconnection of the ecosystems produces unexpected synergestic

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impacts whereby substances interact with each other in complex ways (Crowley & Walker,
2012). In order to become effective the policy making of environment must include an awareness
of ecological thresholds, principle of connectivity, holism and complexity and precaution in the
face of ignorance and irreversibility. Excessive population, water management problem,
destruction of soil fertility, overhunting, habitat destruction, salination and soil fertility loss are
all the consequences of displacement (Byrnes, 2013).
Answer3.
A. When the cost of the coffee beans rises by $0.20 per pound, people will buy less of
roasted coffee and the demand will decrease since coffee beans becomes expensive
When 50 cups of coffee can be bought by one pound, we will get one cup of coffee worth $0.20.
However, when the price increases. When the price of the coffee increases by $.20, let us assume
one pound of coffee costs $x. Then the price of one cup coffee will be $x/50. When the price
increases by $0.20, the price becomes $x+$0.20, therefore the price of one cup of coffee will be
$x+$0.20/50. Therefore, the increase in the price of coffee will be {($x+$0.20)-$x}/50 which
will equal to $0.004
B. When the price of coffee is increased by nine percent J.M Smucker Co., it still would not
lose customers though having lot of rivals because of its high brand name. As it has a high brand
name its consumers will stick to its products. Therefore, when it increases its coffee price by nine
percent, the profit will also increase by 9 percent. Due to high brand name after its coffee but the
inelasticity will prevail only to a certain extent (Nagle & Müller, 2017). After sometime if the
company raises it price more than 9 percent it may lose its consumers.

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C. Slashing of prices means reduction of price. It is not always optimal to slash prices for
retaining market share. This is because when firms compete with other competitors within a
specific market the other competitors closely watch the pricing strategies in order to see what
pricing strategy they should use (Nagle & Müller, 2017). Most of the times the firms wait to see
the pricing strategy of other firms and then match with it afterwards. In this case market war
results where no one wins. Cutting prices is not at all a good strategy because it can also cause a
loss. Therefore, the best strategy to win the market share is to advertise and making sure that the
consumers finds the products of high value (Rios, McConnell & Brue, 2013). It is not at all
advisable for the firms to slash price in order to retain market share as it may result to market
war. Slashing prices will reduce price where the other firms will also do the same.

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REFERENCE LIST
Australian Energy Market Operator. (2018). Retrieved from
http://www.aemo.com.au/Datasource/Archives/Archive1338
Burby, R., Dixon, J., Ericksen, N., Handmer, J., May, P., Michaels, S., & Smith, D. I. (2013).
Environmental management and governance: Intergovernmental approaches to hazards
and sustainability. Routledge.
Byrnes, L., Brown, C., Foster, J., & Wagner, L. D. (2013). Australian renewable energy policy:
Barriers and challenges. Renewable Energy, 60, 711-721.
Council, T., & Whitlock, R. (2018). Wind - Time for honest discussion about energy in South
Australia says Clean Energy Council - Renewable Energy Magazine, at the heart of clean
energy journalism. Retrieved from
https://www.renewableenergymagazine.com/wind/time-for-honest-discussion-about-
energy-in-20160722
Crowley, K., & Walker, K. J. (2012). Environmental policy failure. Prahran: The University
Press. Google Scholar.
Dovers, S. (2013). The Australian environmental policy agenda. Australian Journal of Public
Administration, 72(2), 114-128.
Ford, J. A., Steen, J., & Verreynne, M. L. (2014). How environmental regulations affect
innovation in the Australian oil and gas industry: going beyond the Porter Hypothesis.
Journal of Cleaner Production, 84, 204-213.

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McConnell, D., Forcey, T., & Sandiford, M. (2015). Estimating the value of electricity storage in
an energy-only wholesale market. Applied Energy, 159, 422-432.
McConnell, D., Hearps, P., Eales, D., Sandiford, M., Dunn, R., Wright, M., & Bateman, L.
(2013). Retrospective modeling of the merit-order effect on wholesale electricity prices
from distributed photovoltaic generation in the Australian National Electricity Market.
Energy Policy, 58, 17-27.
Nagle, T. T., & Müller, G. (2017). The strategy and tactics of pricing: A guide to growing more
profitably. Routledge.
Rios, M. C., McConnell, C. R., & Brue, S. L. (2013). Economics: Principles, problems, and
policies. McGraw-Hill.
Tietenberg, T. H., & Lewis, L. (2016). Environmental and natural resource economics.
Routledge.

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