• Internal Code :
  • Subject Code : MB113
  • University : Wentworth institute
  • Subject Name : Economics

Economics Assessment Test

1. (a) Yes, in my opinion I believe that in the movie industry there would be continued success in the coming years ahead. The reason to this being is in a market such as that of the movies, which is now becoming monopolistic anyone can join the market with no barriers to entry or exit. The monopolists always try to maximise their sales by putting much investment on the advertisement of their products, which are the movies in this case which will consequently attract the customers leading to higher sales. 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 AA and of the industry is CC but both of them will try to be in equilibrium with OP price and cost incurred and with OQ output so they won’t change any price as it would deviate them from the equilibrium in the case of monopolistic market. If the firm movie maker reduces the price it will gain customers but it will deviate from equilibrium so he won’t change the price and stick to OP.

graph shows Price &cost vs Output Produced

1. (b) Yes, the customers will definitely pay the premium to continue watching the films and other similar content. Now for example sites like –Netflix, Amazon Prime video etc. All these companies are offering to watch movies, web- series and other content in the hopes that people will ultimately watch it because of the value and content they are providing. Speaking in economic terms, these companies are maximising their profits as they are a monopoly in their own fields and they know irrespective of the pricing and cost people and customers will buy it ultimately o watch their shows, movies etc. They are able in maintaining their demand elasticity to less than 1, wherein the demand is not hampered with the price changes. It can also be explained with a diagram where DD is the demand curve and as it is evident the price has changed much more than the quantity produced showing price change did not affect the demand leading to almost a vertical demand curve with demand elasticity equivalent to less than 1.

graph shows price vs quantity produced

2. (a) In light of Covid -19 pandemic it will create an enormous impact on the consumer preferences and behaviour. According to Mc Kinsey (2020) in their latest study they have revealed that due to the lockdown the economy has become completely unstable and is collapsing gravely. As now due to a shutdown of malls, big shopping centres people are now resorting to small commercial stores which are leading their sales to go higher. In such a situation of pandemic consumer and durable goods demand has gone higher rather than of luxury goods. The necessities are being bought and sold at higher prices due the lockdown and shortage. People are more inclined buying food, good sanitized masks etc. Rather than going on to buy cars, motor bikes etc. In addition to this the small households and middle class households are seen to having limited their expenses and tried to balance their household by adjustments. With the corona virus there also has been a shift from offline marketing to online marketing more so that people can avoid stepping out in the streets to buy their required items.

(b) In respect of large landlords with large shopping centres the Covid-19 pandemic has affected to a great extent. It has lead to a drastic and sharp fall in terms of the revenues, the sales etc. The pandemic has resulted into customers shifting their purchases and demand to small retailers and vendors. According to Michael (2020), the head of Colliers International there will be much focus from the sides of landlords to make a good consumer experience for their customers post the pandemic. It will affect the landlords in a manner that they need to change their respective business models so that they could maintain their position in the current market scenario and post the corona situation so that they could match up to the lost sales and revenues. The novel corona virus has resulted in a decline of about 48% in the shopping centre visits as revealed by a study conducted by InMobi in Australia.

3. Currently the entire world in this time is facing the corona virus which has lead to a downfall in the entire world economy by putting a full stop on all the economic activities. It has resulted to rise in unemployment because the labours are losing their jobs as no transactions and economic activities are taking place due to Covid-19. According to The Guardian (2020) in this year in Australia a majority of about 600,000 jobs have been lost by people. Which has consequently lead to an increase of 6.2% unemployment rate. Now due to lockdown this year, the number of people who lost in their jobs this year in Canberra the numbers was quite shocking and disturbing. Now in addition to this, The Hindu said that the jobs lost this year in the month of April were record breaking. The unemployment rates have surged since September 2015 till date due to a nationwide lockdown. The lockdown has also resulted in the surging decline of the economic growth rate and the GDP of the country as well which are quite reflective of the fact that people don’t have work to do because of the lockdown. The corona virus has resulted in hampering various sectors like the aviation, tourism, food business etc. all the people related to these sectors are now in the line of fire of either losing their jobs or have already been fired.

4. The corona virus has brought all the world economies to its knees. Due to its spread each day it is becoming impossible for it to be contained and so that the economy does not come to a standstill the Reserve Bank of Australia in April 2020 has formulated certain policy measures so as to revive the economy from getting doomed. It is been expected that the economy is moving gradually into recession for the first time since last 29 years.

In response to the fiscal measures taken by the RBA in 2020 which include three economic packages in which 194$ billion has been announced. This includes in it subsidies, support to the households, support to the business class, incentives in the investment and some major targeted measures and efforts undertaken in the most gravely affected regions or sectors. It also includes in it childcare support to around 1 million families and the education of their children. It also includes support to build up the health care system more effectively to fight the corona virus. Now, if we look into the fiscal measures the steps and the efforts taken by the government under these circumstances in this regard were not much up to the mark as the normal daily wage earners and workers and the small households were getting much support by the government by the measures undertaken in the fiscal policy by the RBA as because of their jobs lost they had no money in short no purchasing power to even sustain themselves for their smallest needs and requirements.

Now if we look into the monetary and micro financial measures undertaken by the RBA are not much satisfactory. The RBA has lead to a decrease in the policy rates by a 25 basis points and which has taken now the current cash rate to be at 0.25%. Now the interest rates decreased it might act as a boon for the owners of families having mortgages and would give the share investors some sort of an incentive but it will not be able to do much good to save the economy from getting doomed. This will not be able to make the economy stand with the Covid- 19 pandemic spreading each day. Now to explain it we use two terms that is “demand shock” and the “supply shock”. Now due to the pandemic people are losing their respective jobs so ultimately the demand will reduce. Another reason of reduced demand will be now due to the current scenario people are practicing social distancing so are not going out in the markets to buy commodities and goods this will again reduce the demand. So now if a rate cut is not doing any good to the demand shock how will it manage to sustain the supply shock. In addition to this people are subsequently loosing the job which is reducing the purchasing power of the people are due to unemployment and recession the economy is falling badly. The RBA itself said that in these times despite the efforts are steps taken by the RBA would lead to a large amount of decrease in business fall outs and also the loan debts would increase only.

Now if we take the property market into consideration it will be facing high risks since the demand for good and new houses would reduce incidence of the negative equity would rise if the prices of homes start to reduce sharply. Even with the economic package the government still seems to be unsure and uncertain of the trajectory of the economy’s disturbances which it is enduring due to the current pandemic of Covid-19 and how the economy will again recover from such a deep depression and shock.

5. The response given by Josh Frydenberg in taking the current economic and health crisis under consideration due to the pandemic of Covid-19 was required. Since the entire Australian economy was falling into a great economic depression because of the lockdown being done and putting up a full stop on all the economic activities and transactions. He said nations have bent its knees to the novel corona virus in the last few months. The virus which started from Wuhan, China has now taken the entire world in its claws. Now even Australia is bearing the consequences of the deadly disease. The International Monetary Fund (IMF) has predicted the entire world economy to decline by 3% in 2020. He also said that in Australia due to the current situation and crisis the unemployment rate is expected to go much higher till 10% in the month of June. The country has also seen a decline in the consumption, demand, supply of goods and services. In addition to this, the investment in the business domain is predicted to fall sharply to a great extent of around 18%.

Now taking all this into account to revive the economy from the crisis the government has tried to undertake certain measures and steps so as to enable a decent rise in the economic growth of the economy. Now to revive the economy the government has granted three economic packages and if they are all put together it would result in the largest fiscal package from the side of the government. This package will mainly focus on households, business sector and to give a backbone to the financial system in the economy.

But in reality the economic package will not be able to do much good and give support to the economy. With a large number of people losing their jobs the economy is coming to a standstill. Now the government itself has the opinion that currently in this dynamics of deadly disease only one out of five households having enough funds and assets to get through this pandemic over the next period. They coined the term to “pocket of vulnerabilities” to explain it. In addition to this if we take a look auction volumes decline have taken over the biggest markets of Australia that is Sydney and Melbourne. Already in September 2019 the Australian economy was struggling in unemployment. Now the unemployment rates have worsened due to the pandemic and have seen a rise of 6.2%. In economic terms in a vicious cycle of weak employment leads to weak demand leading to weak supply leading to weak standards of living which will consequently lead to weak economic growth. Moreover, the investment would be highly reduced which will lead to less creation of jobs leading to poor skilled development which will eventually damage the productive capacity and potential that the economy has.

Thus the policy measures and steps undertaken and implemented by the government will not be able to accelerate the growth rate in the economy and are of not much use because still the small and the needy are not getting benefitted out from it which will automatically hamper the economic growth and prosperity.

 

References

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

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

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 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

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