Faculty of Higher Education
Assignment Cover Sheet
Unit Code HC1072
Unit Name Economics and International Trade
Assignment Number Economic Analysis of the Australian Market
Is this a Group or Individual assignment Individual Assignment If Group, please provide group number _________
Due Date 09/10/20
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ect] Which section(s) did each person work on
Bryan Ngunardi ED2149
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Contents
The Event: 9
Impact on Australian Economy: 9
Fiscal Policy 10
Monetary Policy 11
Findings, Conclusions and Recommendations 12
References: 13
Appendix 14
Australia unveils $11.4 billion stimulus to cu
coronavirus impact 14
Despite only affecting about 120 people in Australia so far, economists are expecting the widening epidemic to cause a recession in the second quarter. 14
Demand and Supply
a) Determinants of market demand for goods and services during out
eak of corona virus are Income of the people, Price of goods and services, Preference of consumer.
Income of the people: Several people lost their jobs due to lockdown imposed by Australian government to control the spread of corona virus. This leads to lack of income among several individual. Decrease in income will cause decrease in demand for goods and services.
Price of goods and services: The event will cause price of necessary goods such as food, mask and medical equipment to increase due to mismatch between supply and demand in the market, whereas price for other goods and services such as car, clothing etc will fall due to lack of demand in these markets.
Preference of consumer: Consumer preference shifted towards food and medical equipments due to the out
eak of corona virus.
Consumer preferences shift towards personal protective equipment purchase even though there is a fall in real income and increase in price of the product. Therefore total demand for personal protective equipment increases during corona virus out
eak.
) Determinants of market supply for goods and services during out
eak of corona virus depends on the expectation of demand for their products, price of inputs, number of suppliers, government policies and regulations.
Expectation: Producers will increase their supply when they predict their demand for their product might increase in near future. They will decrease their supply when they predict their demand for their product might decrease in near future
Price of inputs: If input price decreases the producer will increase their supply and reduce their supply when input price increases.
Number of supplier: Increase in number of supplier will lead to increase in product supply whereas decrease in supplier leads to decrease market supply of output.
Government policies and regulations:
If the policies favour the production such as tax cut, providing subsidies will increase the supply of output whereas unfavourable policies and tight government regulations will lead to decrease in supply of output.
Medical equipment producers expected the demand for those product increases, price of labour inputs (wage) decreases as there are large number of people left unemployed due to lack of business activities in the economy. Supplier in this industry increases compared with the situation before the out
eak of corona virus. Government policies are favored towards the production of medical equipments. Therefore total market supply of medical equipment production increases.
c) There is an urge for personal protective equipment like protective mask, surgical gowns etc among people and government in order to take care COVID affected patients and to prevent other people from getting affected by this disease. Due to this situation supplier has more market power compared to consumer. Cu
ently demand for medical equipments is higher in the nation. Productions of these equipments are slow due to destruction in supply chain of raw materials. Therefore there is shortage in supply of medical equipment in the country.
d) A product is said to be inelastic demand when an increase in price does not affect the demand for product in greater manner. In order to protect people themselves from corona virus or to recover from COVID 19 they have to depend on personal protective equipment. So i
espective of price of this personal protective equipment people tend to buy them to protect themselves. Hence the price elasticity demand for personal protective equipment is said to be inelastic. In this situation consumer will bear an increase in price of personal protective equipment’s, because now this equipment is consider as a necessary good in the nation to protect people from COVID.
Industry Description and Market Structure Analysis:
a) Before the out
eak of corona virus Personal Protective Equipment manufacturers in Australia was less in number, because this industry faced competition from China manufacturing industry. Due to Pandemic out
eak increase in demand for PPE among people and supply from china got destructed. In order to avoid the shortage for PPE in the nation Federal government started to source and facilitate PPE, critical medical supplies and ventilators for the National medical stockpile. So Government requested to engage more number of firms in production of PPE. Cu
ently there are around 130 firms were engaged to produce PPE. Presently competition among Australia’s PPE manufacturing industry is increasing, because people depend on domestic supplier instead of international supplier at present due to fear of corona virus spread.
) PPE industry is perfect competition before corona virus spread, because Australia PPE market mostly depends on import from China. Trade increased the number of PPE supplying firm in Australia. Pandemic out
eak restricted the trade with China, which distu
ed the supply chain on the other end COVID 19 started to spread in the nation. This created excess demand along with shortage in supply of PPE. At this time existing domestic firms started to exploit the consumer by charging them at higher price. Cu
ently the market structure for PPE is oligopoly. Consumer will able to buy PPE at lesser price in perfect competition market compared to Oligopoly market. In oligopoly there is only few firms exist so firm is the price maker while in prefect competition firms are not price maker.
c) Australian Competition and Consumer Commission acted as a regulator for PPE industry .On 30th March 2020, Minister for health made a determination under the Bio security Act 2015, prohibiting price gouging on essential goods during COVID-19 pandemic. Custom regulation 1958 introduced new measures aimed at preventing exploitative exportation of essential good during the COVID 19 pandemic. These measures will ensure that people in Australia will not suffer from the issue of high price and shortage.
d) Independent Competition and Regulation Commission (ACT) they protect the ongoing interests of consumers and businesses operating in the Te
itory through our regulatory decisions and advice to the ACT Government. Australian Register of Therapeutic Goods (ARTG) involved in regulating the standard of PPE supply in the nation.
Externalities:
a) There is third party who is affected by spread of corona virus, because those who had traded with Australia lost their market in this nation temporarily. Out
eak of corona virus affected their supply chain, so their export got affected. During this time domestic producer will replace them in Australian PPE market.
) Corona virus impacted the third party in negative way and it impacted the domestic supplier in Australia in positive way. Third parties supply chain gets destructed due to fear of corona virus spread. For example Import restriction in Australia to avoid the spread of this diseases leads to temporarily stopping the trade with china affected Chinese who exported to Australia and resulting in losing their profits. At the mean time the supply gap is filled by domestic supplier, who will charge higher price compared to importing price of a product. This will impact domestic producer in positive way by increasing their profits.
c) Pandemic out
eak will lead to reduce foreign capital inflow and increase foreign capital outflow in Australia, which will affect the nation’s growth. Government should assure trading nations will be resumed after controlling the spread of corona virus.
Findings and conclusion:
Out
eak of corona virus affected international market in negative way and domestic market in positive way. This paved the way for gaining profit among domestic producer by reducing competition through restriction of trade with other countries to avoid the spread of corona virus. Domestic Firms producing Personal Protective Equipment faced oligopolistic competition, this created an advantage to increase their supply and sell their product at higher price with excess demand in the nation.
References:
1. Economic times Australia unveils $11.4 billion stimulus to cu
coronavirus impact https:
economictimes.indiatimes.com/markets/stocks/news/australia-unveils-11-4-billion-stimulus-to-cu
-coronavirus-impact/articleshow/ XXXXXXXXXXcms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
2. National Law Review COVID-19: (Australia) Government Bans Price Gouging, Exploitative Exports of Personal Protective Equipment https:
www.natlawreview.com/article/covid-19-australia-government-bans-price-gouging-exploitative-exports-personal.
3. ABC News Corona virus fires up production at Australia's only medical mask factory https:
www.abc.net.au/news/ XXXXXXXXXX/inside-australias-only-medical-mask-factory/ XXXXXXXXXX
4. Australian Government Department of Industry, Science, Energy and Resources National Measurement Institute helping industry respond to COVID-19 https:
www.industry.gov.au/news-media/covid-19-news/national-measurement-institute-helping-industry-respond-to-covid-19
The Event:
The entire world has been facing the effect of COVID 19 deadly virus which seems to have been leaked from china. World Health Organization (WHO) has declared this deadly as pandemic out
eak, because it claimed millions of people life all over the world. This disease affected the major nations like Italy, Spain and United States economy worse. Cu
ently no nation has discovered vaccines, that develops antibodies against the virus or no curable medicines has also developed. The only way to stay safe from the pandemic that has been recommended by WHO is social distancing. Social distancing calls for locking down and closing down of the entire economic activity. Closing down of the entire economy has led to the major downfall of the income’s world over.
Impact on Australian Economy:
GDP and Employment:
a) Out
eak of deadly diseases affected the Gross domestic product seasonally adjusted chain volume of Australia growth rate by 0.3% in March quarter 2020 compared to previous year of same quarter. Australia’s GDP growth rate was 1.4% from March 2019 to March 2020.Australia imposed lockdown after few case of corn virus reported, this affected the contribution of industry to the Australia GDP. Due to pandemic effect growth rate of GDP of the nation expected to fall by 10%.
Out
eak of deadly virus has negative impact on investment, consumption, net exports and government expenditure. This event leads to shutting down of various business activities; investment on business has also come down resulting in decrease in income of several people. This event also caused loss of jobs among several individuals and increased unemployment rate in the country, due to lack of business activities in the country. Decrease in income will lead to reduction in consumption expenditure, which in turn results in reduction of aggregate demand for goods and services in the economy.
This event is expected to cause a decrease in Aggregate demand for all goods and services in the economy and would shift the aggregate demand curve to the left. Production of output before pandemic effect with new aggregate demand would lead to