Economics Assignment: Analyzing Market Structures, Trade, and Labor

This economics assignment addresses several key concepts. It begins with examples of supply and demand changes in daily life, such as the umbrella market during the rainy season. The assignment then explores income elasticity of demand, differentiating between normal, inferior, and luxury goods with relevant examples like beer and rice. Next, it delves into market structures, providing examples of oligopolistic (Australian banking industry) and monopolistic competition (Australian restaurants and pizza places). The assignment also examines the benefits of free trade agreements, highlighting increased market access and innovation. It further discusses the impact of technology and innovation on the labor market, including disruptive technologies like robotics. Finally, the assignment includes a supply and demand diagram, determining equilibrium price and quantity, and analyzing market surplus. The assignment concludes with a discussion on the role of advertising in monopolistic competition and its impact on demand elasticity.

Running head: ASSIGNMENT 1
ASSIGNMENT
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ASSIGNMENT 2
Question1
A good example where the demand and supply changes are observed in daily activities is
the case of the demand and supply for umbrellas. During the rainy season, the demand and
supply for umbrellas changes significantly as many people require them. This is a case of
seasonality in demand and supply. Also, if it rains even if it’s not during the rainy season, the
demand for umbrellas increases and consequently their supply. The demand for umbrellas during
these periods exceeds the supply and hence their price increases.
Another example is the case of gumboots. During the rainy season the demand for
gumboots changes and increases significantly. Due to the increase in demand-supply also
changes and increases in order to counter the increased demand in the market. The demand and
supply for gumboots during the other seasons is always low as compared to the rainy season and
hence during these other seasons, the price for gumboots decreases as compared to the rainy peak
season.
Question2
Income elasticity of demand is an indication of the manner in which the demand for
goods and services changes as the consumer level of income is altered. The demand for normal
goods tends to react positively to an increase in consumer level of income while inferior goods
tend to react negatively towards an increment in consumer level of income. This means that the
demand for normal goods increases as consumer income level increases while as the consumer
income level decreases the normal goods demand decreases also. Inferior goods show
controversy in that their demand decreases as consumer income level increases and increase as
consumer level of income decreases.

ASSIGNMENT 3
Examples of goods which show significant income elasticity is luxury goods. They have
an income elasticity of demand which is greater than 1. For instance, the demand for beer
increases significantly as the consumer income level increases. Also the demand for diamond
increases as the consumer income level increases. The demand for these goods increases by a
greater percentage than that of the consumer income level increase.
Unitary demand elasticity as an economic theory bases its assumption on equal
proportionality change between the quantity demanded and the price. This means that in case the
price for good changes then the quantity of that good demanded change exactly by the same
proportion. Unit elasticity is mostly observed in close substitutes. For instance, if the price of
butter increases by a certain percentage then consumers reduce their consumption of butter by
the same percentage and increase their consumption of margarine by the same percentage since
these goods are close substitutes and hence can be used in place of each other.
A good is said to be income inelastic if its consumption or rather demand shows little
response to consumer income level alteration. This means that such goods change by a smaller
percentage than that of the change in consumer income level. Necessities are mostly associated
with income inelasticity in that they must be consumed and are essential for human survival.
They have income elasticity within the range of 0 and 1. For example, rice and other staple foods
such as maize flour are income inelastic. They tend to retain their consumption percentage as
consumer income level is altered or changed by a small insignificant percentage.
Question3
A market structure generally describes characteristics experienced in a given market
which can be competitive or organizational in nature and they define the competition level and

ASSIGNMENT 4
pricing adopted by the market. There are four types of market structures namely the oligopoly,
monopoly, monopolistic and perfect competition. The two commonly experienced market
structures in Australia are oligopoly and monopolistic competition.
An example of an oligopolistic market structure is the Australian banking industry. An
oligopoly market structure is composed of a few interdependent firms and hence the market
being dominated by a few firms is said to be highly concentrated. The Australian banking
industry is dominated by four major banks namely the National Australia Bank (NAB), Westpac
(WBC), Commonwealth Bank of Australia (CBA) and New Zealand Banking Group (ANZ).
These banks have a high concentration in the industry and account for almost more than 85
percent of Australian banking output especially the domestic home loans. High concentration
and market dominance increase the barriers for entry of new firms into the industry and hence
new investors find it hard to enter the industry even if small other firms operate in the industry.
Hence the Australian banking industry is oligopolistic in nature as it is dominated by a few firms
which have high concentration and higher market share and barriers exist for entry of new firms
into the industry.
An example of a monopolistic competition market structure in Australia is the restaurants
and pizza places. A monopolistic market structure consists of a vast number of buyers and sellers
and is competitive in nature. Some examples of key players in Australian pizza and restaurant
market include Domino’s Pizza, Pasta, Pizza Gusto, Australia’s Pizza House and Borusso’s
Pizza among others. Players in this industry compete in offering the same item but it’s
differentiated to create uniqueness to customers. Hence the Australian Pizza and restaurants are
monopolistic in nature as they are many and compete with each other through various means

ASSIGNMENT 5
such as product differentiation to win a huge market share. Also, barriers to entry into the market
do not exist as firms can enter and leave the market at their own wish.
Question4
Australia has 11 free trade agreements in force. I have experienced the benefits of these
free trade agreements as Australian goods and services have improved in quality and are priced
fairly due to competition resulting from free trade agreements. This is because free trade
agreements encourage foreign investors to enter various Australian industries and hence force
Australian producers to innovate new means of producing high quality cheaper goods and
services in order to remain competitive in the market.
Free trade agreements are beneficial. Free trade agreements increase the market for the
nation’s businesses and avail opportunities for them to expand their operations to overseas
markets for which free trade agreements exist (Freund & Ornelas, 2010). Free trade agreements
also benefit consumers in that they involve elimination of tariffs and quotas among other trade
barriers. This increases consumer choice and enables them to enjoy high quality cheaper goods
and services. Free trade agreements encourage businesses to innovate new efficient production
technologies as it introduces competition in the market and hence businesses must strive to
survive and remain competitive. Free trade agreements reduce a nation’s unemployment level
due to labor mobility as its citizen move to various nations sharing the agreements to secure jobs
overseas. Free trade agreements promote regional integration as nations join together to address
various economic issues and ways in which they can foster their economic growth. Free trade
agreements also encourage foreign investment as various investors gain interest in investing in
various nations having free trade agreements due to the ease of doing business around the region.

ASSIGNMENT 6
This enables nations to improve their total output and also acquire new production technologies.
Therefore for these reasons and many other free trade agreements are beneficial as they enable a
nation to foster its economic growth.
Question5
Technology and innovation is a two-edged sword when it comes to considering their
impact on the labor market. The labor market can benefit from technology and innovation and
also suffer. The labor market benefits from technology and innovation in that, new methods of
production are found and utilized by workers to ease and improve the quality of their
productivity. Also, innovation and technology enable those well versed will the skills required to
secure jobs in carrying out production using the new technology and innovation. The labor
market can also suffer from technology and innovation in that production which could be carried
out by numerous employees is automated and performed by a few types of machinery based on
technology. This leads to workers being laid off as they are replaced by new technology and
innovation which aim at cutting business production cost.
Disruptive technology and innovation involve coming up with new products and services
which eventually replace the existing market. Disruptive technology and innovation involves the
creation of new markets and with time displace markets and products established by leading
firms. Disruptive technology negatively impacts the labor market in that it leads to workers being
laid off due to established efficient new ways of production. Only a few workers are maintained
for operating the newly innovated technology. Also, when newly innovated products replace
competitor’s goods and services, the competitor’s companies collapse and as a result, the
workers employed by these companies lose their jobs. One example of disruptive technology and

ASSIGNMENT 7
innovation is robotics. Robots have been innovated to carry out production activities replacing
workers and hence increasing unemployment. Another example is the invention of email and
mobile phones which displaced letter writing hence affecting the postal industries.
Question6
2.
a. The demand and supply diagram is drawn below based on the data given.
Price per gallon (in $) Quantity demanded Quantity Supplied
1.00 800 500
1.20 700 550
1.40 600 600
1.60 550 640
1.80 500 680
2.00 460 700
2.20 420 720
The respective supply and demand curves are:

ASSIGNMENT 8
400 450 500 550 600 650 700 750 800 850
0
0.5
1
1.5
2
2.5
Demand Curve
Supply Curve
Quantity
Price ($)
The equilibrium quantity and price are found at the meeting point (equilibrium point) of
the demand and supply curve as 600 and $1.4 respectively.
b.
If the price of gasoline is set at $1.6, the quantity demanded of gasoline is lower than that
demanded at the equilibrium. This is in accordance with the law of demand in which bases its
argument on the fact that an increase in price for a good lowers its demand while a decrease in its
price raises its demand. A price of $1.6 makes the quantity supplied of gasoline higher than that
supplied at the equilibrium. This is in accordance with the law of supply which argues that
suppliers tend to supply more of a commodity when prices increase. The price increment of
gasoline to $1.6 results to market surplus in that the demand decreases while supply increases.
The market surplus, in this case, is 90 (640-550) which is obtained by subtracting the quantity
demanded from the quantity supplied.

ASSIGNMENT 9
Question7
3.
Advertising in the context of business refers to the act of creating awareness about the
business’s products. It enables customers to differentiate businesses’ products in various
considerations such as branding, quality, and quantity among others. The monopolistic
competition involves stiff competition although businesses operating in this market structure
tend to have some degree of price control in that they can differentiate their products and set
their own prices to maximize profits. The technique of advertising enables firms in monopolistic
competition to differentiate their products from those of other competitors. This makes them
control the market to some extent and hence charge their own prices to make higher profits.
Advertising aims at convincing customers about the superiority of firm’s products as compared
to competitors in the market and if customers are well convinced then the firm can charge higher
prices and make more sales to maximize its profitability.
Advertising enables firms in the monopolistic competition to increase the demand for
their products and reduce the elasticity of demand. Advertising increases the quantities
purchased by consumers and this leads to a shift in the demand curve for the advertising firm in
the right direction. Also, customers tend to limit their shift or rather a reaction to the change in
price for the firm’s commodities and this decreases the demand elasticity for the firm’s products
making the demand curve steeper.
Therefore advertising in monopolistic competition enables firms to reduce competition
and create awareness about their products hence increasing their daily sales. This enables firms

ASSIGNMENT 10
to maximize profits and therefore businesses in monopolistic competition keep on advertising as
long as the advertising costs incurred are less than the profits realized from it.
Question8
Australia is among the richest nations not only in the region of Asia-Pacific but also in
the whole world at large. The nation has been embracing freeness in its economy and is ranked
position 5 in terms of economic freedom having a score of 80.9 according to the 2019 Index. Its
labor and trade freedom, as well as government integrity and fiscal health, have been maintained
high and this has enabled the nation to keep its excellent economic performance. In terms of
economic performance, Australia has been ranked the fourth position out of 43 nations in the
region of Asia-Pacific. Its economic performance is higher as compared to that anticipated at the
regional and world levels. Australia currently has a growth rate of 2.3 percent which is relatively
a good growth rate as compared to many nations worldwide. Its unemployment rate still remains
at 5.6 percent which is relatively high but currently, the nation is experiencing an increase in job
opportunities. The nation’s inflation rate has been kept stable and relatively low at 2.0 percent.
The nation’s exchange rates have also been maintained stable. This has enabled many businesses
to predict their future with great certainty and as a result, the nation has continued to be a center
of attraction for many investors. This has increased the nation’s foreign direct investments inflow
to about $46.4 billion. The Reserve Bank of Australia has maintained cash rates at a low record
of 1.5 percent in order to foster the nation’s economic growth (Lowe, 2012). In a nutshell, the
Australian economy is doing well and better results are anticipated in the future.

ASSIGNMENT 11
References
Freund, C., & Ornelas, E. (2010). Regional trade agreements. Annu. Rev. Econ., 2(1), 139-166.
Lowe, P. (2012). The changing structure of the Australian economy and monetary policy. The
Recent Economic Performance of the States 1 Trends in National Saving and Investment
9 The Distribution of Household Wealth in Australia: Evidence from the 2010 HILDA
Survey 19 India’s Steel Industry 29, 79.