FNSSINC601 - Economic Principles and Application in Finance Sector

This report delves into the application of economic principles within the financial services industry. It addresses key concepts such as price elasticity of demand, illustrating different scenarios like inelastic, elastic, perfectly inelastic, and perfectly elastic demand with relevant examples. The report further examines the environmental impact of iron and metal ore processing in Australia, emphasizing the need for sustainable practices and the implementation of carbon tax policies. It suggests adopting new technologies like Sinter production to reduce carbon emissions. Additionally, the report covers financial modeling techniques, asset pricing models, and models for determining organizational value in relation to capital structure, highlighting the importance of integrating economic understanding into financial decision-making. The document concludes by stressing the significance of continuous learning and adaptation to evolving economic policies for professionals in the financial sector. Desklib provides solved assignments for students.

Running head: ECNOMICS ASSIGNMENT
Application of economic principles to work in financial services industry
Name of the student:
Name of the University:
Author note

1ECONOMICS ASSIGNMENT
Table of Contents
Answer to question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
Reference:..................................................................................................................................8

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Answer to question 1:
Price elasticity of demand is one of the basic yet essential tools to determine the
percentage change in demand due to the change in price of the said goods or service (Buer
2016). Price elasticity of demand can be negative, neutral or positive depending upon the type
of good or service. If the product is normal good, then price elasticity of demand is negative
that means with rise in the price, there will be fall in the quantity demanded of the said good
or service. On the other hand, good or services, that do not follows the law of demand possess
positive price elasticity of demand (Miller and Alberini 2016).
Formulation of the price elasticity of demand can be done through dividing change in
quantity demanded by the change in price of the good or service and the value often provides
negative outcome that depicts the inverse relation between the price change and the quantity
demanded (Pagoulatos and Sorensen 2017). However, depending upon the type of product, it
can be positive and even neutral too. In order to demonstrate the different situation of the
Price Elasticity of Demand, following figures can be utilized:
Figure 1: Inelastic demand
Source: (Burke and Liao 2015)

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In this case, change in the price reflects small amount of change in the demand and
vis-à-vis. With inelastic demand, if the price gets enhanced, then the firm will face loss and in
case fall in price, there will be less amount of revenue (Fernando and Premaratne 2018).
Figure 2: Elastic demand
Source: (Burke and Liao 2015)
From figure 2, it can be seen that, under the positive price elasticity of demand, if the
price falls, then there will be rise in the revenue for the firm through large amount of rise in
the quantity demanded and on the other hand, if the price rises, it will lead to fall in the
consumer surplus as well (Miller and Alberini 2016).

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Figure 3: Perfectly inelastic demand
Source: (Burke and Liao 2015)
Considering the figure 3, it can be seen that the price elasticity of demand in this case
is ‘zero’ depicting a perfectly inelastic demand situation, where the change in price reflects
no impact on the quantity demanded (Burke and Liao 2015). Therefore, in this case, demand
of the good or service does not change with the change in the price of the same. This situation
can be seen in case of the essential livelihood goods such as medicines, nursing service and
others. As the figure 3, depicts, in case of shift in the equilibrium price, there will be shift in
the demand in the same direction.

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Figure 4: Perfectly elastic demand
Source: (Burke and Liao 2015)
Considering the figure 4, it can be said that, goods which have substitution possess
perfectly elastic demand and in such cases, change in price level change the demand as well
(Esteves and Reggiani 2014). For instance, if the demand changes, price of the commodity or
service does not change. As per figure 4, if the supply of a good rises from S1 to S2, then it
will not reflect any rise in the price due to the availability of the substitution of the same.
Utilizing the above analysis, in case of Ferrari, it can be seen that the firm operates
under the luxury good segment, where the price elasticity of demand is positive. Thus, with
rise in the price, there will be high amount of response in demand same as well. Rise in price
will, lead to fall in the demand, however, the revenue of the firm will be increased by a large
extent. As it can be seen from the figure 2, in case of fall in price, there will loss in revenue
by yellow portion and enhancement in revenue by the blue section. Thus, if the Ferrari
management decides to reduce the price, then it will enhance the revenue of the firm by a
large extent.

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Answer to question 2:
All of the iron metal used to deliver a huge amount of steel offers ascend to an
average of two tons of ozone-harming substance discharges – halfway because of mining and
transport, however generally because of the purifying or refining with coking coal. Steel
processes that utilization electric circular segment heaters utilize a high extent of reused steel,
and this can impressively decrease the outflows power (Venkateswarlu et al. 2016). The
utilization of biomass to supplant coking coal likewise diminishes the emanations force of
steel. Besides, the Pilbara is currently a system of railroads, super mines, and investigation
leases – with some notwithstanding experiencing the focal point of national parks.
In manageability reports, it can be seen the progressive increment in water and vitality
utilization and GHG emanations per ton of iron metal railed to the ports. The measure of
water released every year to the earth from mines is likewise expanding generously to a great
extent because of mines getting greater and more profound and having more water to deal
with some huge wet seasons don't help either (Gautam et al. 2018).
Now, it has been clear that one of the main source of the environmental pollution in
Australia is sourced by the iron and metal ore processing plans where blast furnaces and
works of steel act as the catalyst towards the creation of environmental pollution. Under this
situation, environmental sustainability of the furnace in the processing plants of the metal
ores is of great significance because government of Australia is aimed to curb the total
pollution level by a large extent within the next one decade (Venkateswarlu et al. 2016).
Under this situation, it has become an essential obligation of the mineral ore processing
plants to introduce such techniques that can reduce the amount of greenhouse gas production
and streamline their organisational framework so as to align itself with the local legislation in
case of social responsibility.

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As the method of controlling the environmental pollution by the iron ore processing
plants, carbon tax can be levied on them. It will charge the producer an predefined amount of
tax on the producer depending upon their level of carbon emission. Revenue obtained through
the carbon taxation will be utilised by the government to compensate the sufferer of the iron
ore processing activity through subsidy.
Second process of controlling the environmental pollution is by taking initiative to
force the firm so that they can introduce new technologies to reduce or at least curb the
carbon production by them. One of the best suitable process for the firm to utilise the Sinter
production where fine sized raw material agglomerate the ores into suitable size in order to
being charged into the blast furnace (Wright et al. 2017). Through handling raw material,
discharge, wind box and cold screen new technologies like Sinter production can reduce the
carbon emission by the firm.
To conclude, it can be argued that bringing in new technology or introducing effective
taxation policy are beneficial for the firm as well as the government too, where they can trade
off carbon emission with tax or investing in new technology.

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Reference:
Buer, M.C., 2016. Elasticity of demand. In Routledge Revivals: Economics for Beginners
(1921) (pp. 36-39). Routledge.
Burke, P.J. and Liao, H., 2015. Is the price elasticity of demand for coal in China
increasing?. China Economic Review, 36, pp.309-322.
Esteves, R.B. and Reggiani, C., 2014. Elasticity of demand and behaviour-based price
discrimination. International Journal of Industrial Organization, 32, pp.46-56.
Fernando, R. and Premaratne, S.P., 2018. Price Elasticity of Demand for Pipe-Borne Water:
A Pre-Requisite for Solving the Water Problem in the Colombo City. OUSL Journal, 13(1).
Gautam, S., Patra, A.K., Sahu, S.P. and Hitch, M., 2018. Particulate matter pollution in
opencast coal mining areas: a threat to human health and environment. International Journal
of Mining, Reclamation and Environment, 32(2), pp.75-92.
Miller, M. and Alberini, A., 2016. Sensitivity of price elasticity of demand to aggregation,
unobserved heterogeneity, price trends, and price endogeneity: Evidence from US
Data. Energy Policy, 97, pp.235-249.
Pagoulatos, E. and Sorensen, R., 2017. What Determines the Elasticity of Industry
Demand?. Journal of Agricultural & Food Industrial Organization, 15(2).
Peters, S., de Klerk, N., Reid, A., Fritschi, L., Musk, A.B. and Vermeulen, R., 2016.
Estimation of quantitative levels of diesel exhaust exposure and the health impact in the
contemporary Australian mining industry. Occup Environ Med, pp.oemed-2016.
Venkateswarlu, K., Nirola, R., Kuppusamy, S., Thavamani, P., Naidu, R. and Megharaj, M.,
2016. Abandoned metalliferous mines: ecological impacts and potential approaches for
reclamation. Reviews in Environmental Science and Bio/Technology, 15(2), pp.327-354.

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Wright, I.A., Belmer, N. and Davies, P.J., 2017. Coal mine water pollution and ecological
impairment of one of Australia’s most ‘protected’high conservation-value rivers. Water, Air,
& Soil Pollution, 228(3), p.90.