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Economics

1. (a) Yes, in my view I have the opinion that in the movie industry there would be continued success in the coming years ahead as in a market such as that of the movies, it is now becoming monopolistic market where with no restrictions to entry or exit (Jhinghan, 2016). Thus the movie makers always try to increase their sales by putting investment on the advertisement of their products which will consequently attract the customers leading to higher sales (Ivy Panda, 2020). It can be explained with a help of a diagram given below as we can see that in the long run the demand curve of the movie maker is RR whereas of the industry is BB and equilibrium is at OP price and cost and OQ level of output so they won’t do any variation in price as it would deflect them from the equilibrium. If the movie producer decreases the price it will gain customers but it will deflect from equilibrium so he won’t change the price and remain to OP price.

(b) Yes, the customers will pay the premium to continue watching the films and other similar content. For example sites like – Amazon Prime video, etc. All these companies are giving subscription to watch movies, web- series, etc. in believe that people will watch it because of the value and content they are providing. These companies are maximising their profits as they are a monopoly in their respective domains and they know irrespective of the pricing customers will purchase it. Their demand elasticity is less than 1, so the demand is not affected with the price (Tutor 2u, 2016). It can also be explained with a diagram where DD* is the demand curve and in this the price has changed much more than the output produced showing price change did not hamper the demand leading to almost a vertical demand curve with demand elasticity equal to less than 1.

2. (a) In the current scenario of Covid -19 it has done a huge impact on the consumer preferences and behaviour. Mc Kinsey (2020) in their analysis this year showed that because of the lockdown the economy has become completely unstable. With malls, big shopping centres shutting down consumers are now purchasing from small commercial stores which is increasing their sales. In times of a pandemic the demand for necessity goods has increased are being bought and sold at increased prices than luxury goods due to the lockdown (Financial times, 2020). Customers are more inclined buying food, good sanitized masks etc. Rather than to buy cars, motor bikes etc. Moreover, small households are seen to having reduced their expenses and tried to balance by adjustments. Due to corona virus there also has been a shift from offline to online marketing because people are avoiding stepping out to purchase.

(b) Large landlords with big shopping centres have been affected to a large extent due to Covid-19. It has lead to a sharp reduction in the revenues, sales etc (Daily Mail, 2020). It has resulted into buyers demanding from small retailers. Michael (2020) said that there will be much focal point from these landlords to make a healthy consumer experience for the people after the pandemic. Landlords will get influenced in a way that they would require to change their business models so that they could maintain their standard in the market and after corona they could balance to the lost sales and revenues. Covid-19 has lead in a reduction of about 48% in the shopping centre tours as shown in a study done in Australia by InMobi.

3. Covid-19 has taken in the entire world economy to a steep end by putting a full stop on all the economic projects and increasing the unemployment because the workers are losing their jobs. The Guardian (2020) revealed that in Australia a number of about 600,000 jobs have been lost by labourers. Due to this unemployment rate has risen to 6.2%. Due to nationwide lockdown this year, the number of workers who lost in their occupations in Canberra the numbers that came out was shocking. Furthermore, The Hindu (2020) revealed that the occupations lost in the April’2020 were breaking all the records. The lockdown has lead in reducing economic growth rate and the GDP Australia as well which is seen as a fact that people don’t have work due to the lockdown.

4. Covid-19 has taken all the world economies to its downfall. Now it is becoming nearly impossible to stop the spread of the virus. For the economy to revive the Reserve Bank of Australia in April 2020 has made certain policies so that the economy could be saved from being unstable (RBA, 2020). It is been predicted that the economy is going into recession period for the first time since 29 years.

The fiscal policies undertaken by the RBA in 2020 has 3 economic packages in which 194$ billion has been allocated. In this subsidies, support to the households & business class, incentives for investment etc have been given. It also has in it the childcare support to 1 million families and for the studies of their children. To establish the health care system more efficiently to fight the corona virus support will also be given to it. In the fiscal efforts undertaken by the RBA in these times in this context were not much of a help as the daily wage workers and small households were unable to get assistance by the government with these measures. As people had lost their jobs lost they had no money even to manage for their essential requirements.

In regard of monetary and micro financial steps taken by the RBA is also not much to the expectation. The RBA has done a fall in the policy rates by around 25 basis points and which has resulted the cash rate at 0.25%. Moreover with the reduction in interest rates it may act as a help for the households having mortgages and it would give the share investors some incentive but still will not be satisfactory to revive the economy. To explain it further we use the terms of “demand shock” and “supply shock” (SSRN, 2020). Now the pandemic has resulted in people are losing their jobs which will likely decrease the demand. Another cause of decreased demand will be now be due to people following social distancing so they are not stepping out in the markets to buy goods. So ultimately if a rate cut is not helping in the demand shock how will it support to manage the supply shock. Moreover, people have also lost their job which is decreasing the purchasing power of the people resulting in unemployment and recession in the economy. The RBA itself went to say that in these times despite the steps taken by us would take to a great extent in business fall outs and also the loan debts would eventually rise only.

 The government also with the economic package still seems to be unsure of the effect of the economy’s disturbances which it is handling due to corona virus and how the economy will raise again from such a shock.

5. Josh Frydenberg in his response of the current economic and health crisis due to Covid-19 said that the Australian economy was leading into a vast economic shock because of the lockdown everywhere (The Hon Josh Frydenberg MP, 2020). He said that even the developed nations have now bowed down to the virus in the last few months passed. Covid-19 which begun from Wuhan, China has now taken almost the whole world in its effects. Australia is also enduring the effects of the deadly disease. IMF has predicted the whole world economy to reduce by 3% this year. He even said that in Australia due to the crisis the unemployment rate is predicted to increase even more up to 10% in June. Australia has also experiencing a reduction in the demand, supply etc of goods. Moreover, the investment in the business sector is expected to reduce to a large amount of around 18%.

Taking all these things into consideration, now to recover the economy from the crisis the government has undertaken steps and policies. To recover the economy the government has announced 3 economic packages and if combined together it would lead in the largest fiscal package from the government’s side till date. This package will try to focus on the households, business firms and to give a level of support to the financial system in the economy as well.

The reality of this package is that it will not be able to give much support. With a majority people having their jobs the economy is falling. Furthermore, the government has the view that due to the virus only 1 out of 5 households would be having sufficient funds to get to recover from this pandemic. Government has termed it as “pocket of vulnerabilities”. Moreover, the auctions amounts have reduced and captured Sydney and Melbourne. Also in September 2019 the economy of Australia was facing unemployment. Today unemployment rates have deteriorated because of Covid-19 and have seen an increase of 6.2%. In terms of economics, in a vicious cycle of weak employment takes to weak demand further taking to weak supply which will subsequently lead to low economic growth. Also, the investment would be decreased which will lead to fall in the creation of jobs leading to damaging the productive ability that the economy contains.

Thus the steps taken by the government won’t be able to increase the growth rate in the economy and won’t help much as the needy are not getting any benefits from it which will subsequently reduce the economic growth.

References for Economics

Daily Mail. (2020). How australia’s shopping centres could never change thanks to coronavirus- even after lockdown is over. Retrieved from: https://www.dailymail.co.uk/news/article-8283701/Australias-shopping-centres-change-forever-COVID-19-lockdown.html

Financial times. (2020). The pandemic is yet to dampen demand for luxury goods resale. Retrieved from: https://ftalphaville.ft.com/2020/05/04/1588605300000/The-pandemic-is-yet-to-dampen-demand-for-luxury-goods-/

Ivy Panda. (2020). Role of advertising in monopolistic competition and oligopoly advertising. Retrieved from: https://ivypanda.com/essays/advertising-in-monopolistic-competition-and-oligopoly/

Jhinghan, M. L. (2016). Micro economic theory. Delhi: Vrinda Publications.

Mc Kinsey. (2020). Emerging from covid-19: Australians embrace their values. Retrieved from: https://www.mckinsey.com/industries/retail/our-insights/emerging-from-covid-19-australians-embrace-their-values

RBA. (2020). The covid-19 pandemic is causing significant strains in the global financial system. Retrieved from: https://www.rba.gov.au/publications/fsr/2020/apr/overview.html

Reuters. (2020). ‘Very material’ contraction likely in australia due to coronavirus: central bank minutes. Retrieved from: https://www.reuters.com/article/us-australia-economy-rba/very-material-contraction-likely-in-australia-due-to-coronavirus-central-bank-minutes-idUSKBN21J3U1

SSRN. (2020). The economic implications of the corona virus. Retrieved from: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3566477

The Guardian. (2020). Unemployment rate in australia jumps to 6.2% due to covid-19 as 6000,000 jobs lost. Retrieved from: https://www.theguardian.com/business/2020/may/14/unemployment-rate-in-australia-jumps-to-62-due-to-covid-19-as-600000-jobs-lost

The Hindu. (2020). Australia unemployment rate 5 year high. Retrieved from: https://www.thehindu.com/news/international/australia-unemployment-rate-at-5-year-high/article31579443.ece

The Hon Josh Frydenberg MP. (2020). Ministerial statement on the economy, parliament house, canberra. Retrieved from: https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/ministerial-statement-economy-parliament-house-canberra

Tutor 2u. (2016). Explaining price elasticity of demand. Retrieved from: https://www.tutor2u.net/economics/reference/price-elasticity-of-demand

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