ECON6000 Economic Principles and Decision Making

Assessment Task

This assessment allows you to reflect on how assessments 1 and 2 have helped you to understand the overall subject contents and apply the core concepts in real-time job environment. This assignment is to mainly help you reflect how the unit has helped you with a sound understanding of the volatility of business environment and effective decision making as business economists. You would discuss the challenges you have faced whilst trying to apply the concepts and also highlight those areas that you found interesting. Your reflection will be a maximum of 1500 words. You will have a minimum of 6 academic references to support your answer. Do not include information from blogs.

Context

You are expected to submit this assessment 3 at the end of Week11 of the trimester. You will reflect how you managed to apply the concepts covered in class to real-time economic situations presented. You will clearly explain the challenges that you faced whilst gathering the required information and applying the concepts to the situation. Alongside, you would reflect on the interesting aspects of these assignments that would prepare you as future Business Economists.

Solution

Introduction:

This is a reflecting writing where I discuss how previous assessments, which are, assessment 1 and assessment 2, influence by understanding on economics and whether I can apply these understanding practically in job environment or not. The entire discussion, therefore, describes the volatility of business environment considering microeconomic and macroeconomic variables. Moreover, I also discuss that how theories obtained from previous two assessments can help me to make business decisions as a business economist. MBA Assignment expert During the entire discussion, I also mention challenges as well as interesting areas that I have experienced at the time of conducting analysis for previous assessments. 

Reflection based on Assessment 1:

Assessment 1 is based on microeconomic analysis including the concepts of demand and supply, equilibrium price and quantity and adjustment of equilibrium through invisible hands. As per the instruction given in assessment 1, I considered 7 different products under different categories from my nearest supermarket in order to analyse their demand patterns and how these can be changed. Furthermore, I also implement the concept of elasticity to find whether any of these selected objects is either a Giffen good or a luxury one. The demand elasticity concept is also applied to analyse how change in price can influence total revenue for each of the selected item. Moreover, to understand the relationship between these selected products, I am instructed to use the concept of cross-price elasticity.

Assessment 1 enriches my understanding on basic microeconomic concepts. I successfully implement by knowledge related to demand law, factors influencing demand to change and elasticity concepts practically (Solomon & Golo, 2015). I realize that price is an important concept as it can influence consumers to purchase the product or not. In some situations, higher price tends consumers to demand less quantity of the product while the opposite also happens when price declines. However, I also realize that apart from price other factors like tastes and preference of consumers, income of consumers and price of substitute and complementary products also influence demand for a product to change while price remains the same. Therefore, if consumers prefer a product then its demand can be increased in the market while instead of any price change. During analysis, I also find that there are many goods which are either inferior or normal goods. Consumers decline their demand for inferior goods when their income increases and vice versa (Eaton, 2021). On the other side, increasing income of consumers tends the demand for normal good. From analysis, I observe that necessary goods are mainly considered as normal goods. This is because, people consume normal goods almost every day as they are essential in nature. Hence, these products become less income sensitive than other goods. Similarly, I also found that some goods become less price sensitive and they are called normal goods. Measuring price elasticity of demand and income elasticity of demand are essential as these help me and others to understand that whether the good is normal, inferior of luxurious one. In the similar way, I realize that it become easy to understand whether two goods are substitute or complementary with each other by measuring cross-price elasticity. 

Therefore, the findings help me to understand that a consumer’s preference for a particular product depends various factors such as their income, preference for the brand and habit. Hence, these factors can influence decision-making behavior of consumers significantly in the market (Jasmani & Sunarsi, 2020). The main challenges was to find relevant goods and data for analyzing their demand, price elasticity and cross-price elasticity. After conducting entire analysis, I find one interesting point, which depends on the characteristic of each product. We consume the considered products mostly in our everyday life. However, all of them are not normal, necessary or luxury items. While some products are observed as necessary, some others are found as luxury items. The products are characterized with as per their changing demand due to change of their price or consumer income. The analysis will help me to understand the purchasing behavior of consumers in real life. Hence, as a business economist, I can suggest businesses to set price according to the elasticity of products in the market for gaining higher revenue. 

Reflection based on Assessment 2:

Assessment 2 is based on macroeconomic analysis including the concepts such as inflation, cash rate, aggregate demand, aggregate supply, economic growth and balance of trade of Australia. Hence, the study helps to understand me the present economic situation of a country with the help of relevant data. The given scenario is based on the current economic situation of Australia after the hitting of COVID-19 pandemic. Australia experiences high inflation rate as the bank imposes expansionary monetary policy during the time of crisis, caused by pandemic. Higher inflation rate leads the central bank of the country to increase the cash rate. Furthermore, the ongoing situation of Russia-Ukraine war along with OPEC-US rivalry cause the fuel price to increase. This in turn influences inflation in Australia to remain high (Musarat, Alaloul & Liew, 2021). In this situation, I analysed whether another rise in cash rate is required or not using the macroeconomic concepts. After collecting data from secondary data from online sources, it is found that the Reserve Bank of Australia rises the cash rate by 25 basis points to 2.6% in order to control high inflation of the country’s high inflation. Due to high inflation, cost of living has also increased in the country due to the increasing costs of essential products (Fisher & Huh, 2022). Increasing fuel price makes transportation service costly while costs for new houses also increases significantly during this time. In this situation, the RBA increases cash rate to control inflationary pressure in the economy and can increase it further to control the inflation in coming years. However, I also found that the overall impact of increasing cash rate on the country’s total output is negative. In other words, low investment and high propensity to save lead aggregate demand of the economy to decline. The situation leads aggregate supply to decline and this further causes inflation to rise and the economy can face recession. From analysis, it is also seen that balance of trade of Australia improves after pandemic due to low exchange rate. Hence, the situation establishes a negative relationship between inflation and exchange rate. Furthermore, high inflation causes capital inflow has declined as the international market losses its confidence from the Australian economy. 

Therefore, the overall situation leads the RBA to apply contractionary monetary policy by increasing interest rate which further will decline aggregate demand. This situation can lead the country to experience recession. 

The entire study shows how macroeconomic factors relate with each other and how changes of one factor can influence others either in a positive or negative way. Hence, the finding helps me to understand the overall economic consequences of a country. In other words, the study helps me to predict how high inflation can adversely affect aggregate demand for the country if the central bank intends to rise the interest rate. Hence, as an economic decision maker, I can take precautionary steps for businesses so that they cannot experience any loss in future (Ferreira Gregorio, Pié & Terceño, 2018). The main challenge for me was to collect relatable data and to connect them with macroeconomic theories to come to a conclusion. The main interesting aspects of the study was to find the relationship between theoretical concepts and real life consequences in an economy. Statistical data also show how economy reacts when one of its components rises significantly. The concept helps me to understand that economic condition can be dynamic in nature and businesses need to take decisions accordingly. 

Conclusion:

The assessment influences me to show my understanding after conducting previous two assessments on microeconomic and macroeconomic concepts. The entire works help to me to understand a vast concept of economics and its use in the real field. Moreover, at the time of doing analysis, I also realize how economic factors can influence business environments and purchasing habits of consumers. Each element of economics, such as demand, elasticity, inflation, cash rate, aggregate demand and aggregate supply are crucial as these have direct and indirect impacts on businesses. I experience challenges at the time of collecting data. However, the entire analysis seems very interesting to me.

References:

Eaton, E. (2021). Approaches to energy transitions: Carbon pricing, managed decline, and/or green new deal?. Geography Compass, 15(2), e12554.
Ferreira Gregorio, V., Pié, L., & Terceño, A. (2018). A systematic literature review of bio, green and circular economy trends in publications in the field of economics and business management. Sustainability, 10(11), 4232.

Fisher, L. A., & Huh, H. S. (2022). Systematic Monetary Policy in a SVAR for Australia (No. 2022rwp-194). http://121.254.254.220/repec/yon/wpaper/2022rwp-194.pdf

Jasmani, J., & Sunarsi, D. (2020). The Influence of Product Mix, Promotion Mix and Brand Image on Consumer Purchasing Decisions of Sari Roti Products in South Tangerang. PINISI Discretion Review, 1(1), 165-174. https://ojs.unm.ac.id/UDR/article/download/13409/7864

Musarat, M. A., Alaloul, W. S., & Liew, M. S. (2021). Impact of inflation rate on construction projects budget: A review. Ain Shams Engineering Journal, 12(1), 407-414.

Solomon, S., & Golo Nataša. (2015). Microeconomic structure determines macroeconomic dynamics: Aoki defeats the representative agent. Journal of Economic Interaction and Coordination, 10(1), 5–30. https://doi.org/10.1007/s11403-014-0135-3