FNS60215 Advanced Diploma In Accounting

Answers:

One of the most fundamentals of economics is the focuses on the law regarding demand and supply. Law of demand highlights on the inverse connection between price of a good or service and its quantity demanded. It says that, when the price of a good or service enhances its quantity demanded reduces and vice versa, other things remaining same (Iossa & Martimort, 2015).

The law of supply represents the direct relationship between the quantity supplied and price of a good or service. This refers to the situation that when the price of a service or good increases, it quantity supplied increases in the market and vice versa, other things remaining unchanged (Moulin, 2014).

Figure 1: Law of Demand

Figure 2: Law of Supply

(Source: Author)

In figure 1, as the demand curve is downward sloping, when price increases from P1 to P2, then the quantity demanded falls from Q1 to Q2. This represents the law of demand. Figure 2 shows thatas the supply curve is upward sloping, when price increases from P1 to P2, then quantity supplied of the good rises from Q1 to Q2, which reflects the law of supply.

Prior to the technological advancement, the market equilibrium was at E1, corresponding to price P1 and quantity Q1. With the advancement of technology, there is change in the market supply. Technological advancement determines the level of market supply from the supply side. The producers can produce and supply more in the market with the help of improved technology. This leads the supply curve to shift rightwards to S2 and market supply increases to Q2. This lowers the market price to P2. However, if the demand remains unchanged, the shift in supply results in excess supply in the market and pushes the price down (Nicholson & Snyder, 2014). Hence, the improved products and lower price increase the demand for i-pads and the demand curve shifts to the right. New equilibrium is reached at E3 with corresponding price P3 and quantity Q3. 

Market failure represents the condition of wasteful allocation of resources, products and services. It can arise due to many reasons, such as, positive or negative externality, monopoly power, free rider problem in the public goods, etc. The allocation and consumption of public goods often leads to market failure. The government produces goods for the citizens and imposes taxes for the revenue. However, not all the citizens pay taxes and hence, enjoy the public goods for free. The government cannot restrict the consumption of public goods, such as, roads, parks etc. to only the tax paying citizens. This way the free rider problem arises and this is an example of market failure (Orchard & Stretton, 2016) 

Oligopoly represents a market structure, with many consumers and few large firms controlling the total market. The products are not perfect but close substitutes of each other. The firms behave like a group and create barriers for new firms entering the market (Friedman, 2017).

Australia’s banking sector is classified as an oligopolistic market. Four primary banks in Australia, namely, Westpac, ANZ, Commonwealth Bank and NAB, control the major share of the market for a very long time. These four banks have captured almost 70% of the total market share and have made policies in a manner, which creates barrier for a new bank to enter the market and make profit (Joshi et al., 2013). 

The discussion will be done on the macroeconomic issue of inflation in Australia and its effect on the interest rate and unemployment. Three recent media articles have been chosen from Business Insider Australia, Bloomberg and The Guardian for this purpose. All these articles are based on the primary theme of inflation in the country and its effect on the unemployment and interest rate in Australia.

Australia has made a record of longest running period of economic growth. For more than 26 years, the country never had two consecutive quarters of negative growth or recession (O’Donnell, 2014). Australia has stable inflation rate, interest rate and unemployment, resulting in a stable economy.

The World Bank’s data shows that the inflation rate in Australia remained less than 2% in the past five years. However, the inflation rate crossed 2% in the first quarter of 2017, which happened first time in the last two years, but again, in the June quarter it reduced to 1.9%.

According to the article in Business Insider Australia, by David Scutt (2017), the Australian inflation remained weak. He mentioned that, in the June quarter, the important price rise happened in hospital and medical services, dwelling purchases, and in tobacco and the price offset happened for domestic holiday accommodation and travel, and in automotive fuel. As the inflation rate came back to 1.9%, it is driven by the lower fuel prices. On the other hand, The Guardian (2017) found that the price rise occurred in the first quarter of 2017 was driven by the rise in fuel and electricity prices. In that quarter, the fruits and vegetables prices dropped considerably. However, the inflation rate rise reached RBA’s targeted band of 2% to 3%, hence, the central bank did not raise the interest rate and kept at the record low of 1.5%. Employment level has increased marginally and there is improvement in the wage level, which also contributed in the marginal rise. The Bloomberg article mentioned that the drop in the prices for oil and tradable goods has helped to lower the inflation in Australia (Heath & Thornhill, 2017).

The primary points can be summarized as below.

• Full time and part time employment increased considerably
• Wages increased significantly, resulting in higher demand in the domestic market
• Prices for hospital and medical services, tobacco and dwelling went up.
• Money market was stable due to lower interest rate.