Economics for Business

Question: GDP- Compare Australia with any other economy and discuss their GDP last 2 to 5 years and factors affecting their GDP. Answer: Introduction The study elaborates the economic differences between two different countries along with the concept of Gross Domestic Product (GDP). In order to be more precise, the study considers Australia and China to discuss the economy of these countries. The GDP of these two countries is manifested as well as the differences in the countries economy are established in this particular study. Along with that, the factors are discussed here that affect the GDP and economy of the nations. The entire discussion helps to compare and contrast these two nations in terms of their Gross Domestic Product. The economic differences between Australia and China define the comparison between mixed market and command economy. Chen, Valadkhani and Grant (2016) mentioned that Australia consists mixed market economy. This defines that government of the country is involved in certain degree of economic planning. Most of the economy is dictated by the private sectors that include households and several firms. As discussed by), the China has a command economy that defines that the central power of the country makes all the economic decisions. In order to be more precise, all the decision making process regarding their production and investment is done by the government of China. It has been found that 75% of the Australian work force in engaged in the territory sectors such as service sectors and tourism sectors (Ft.com. 2016). Among the rest, 21.1% is employed in the secondary sectors and 3.6% is engaged in the agricultural sector (Ft.com. 2016). In comparison with Australia, it has been found that China has more even labor force distribution among these three sectors (Ft.com. 2016). More specifically, it is found that 34.6% of the entire labor force is employed in the territory sector, 36.7% is employed in the primary sector, and 28.7% are in the secondary sectors (Ft.com. 2016). Furthermore, the differences are noticed in the unemployment rate of these two nations (Refer to Appendix 1). Comparison between GDP of Australia and GDP Fleming and Measham (2015) discussed that the economy of Australia is considered as one of the largest mixed market economy in the world. As per the financial record of year 2012, the Australian GDP covers 1.7% of the world economy. Further, it has been found that it is the 12th largest national economy as per the nominal GDP measurement and 17th largest economy as per the PPP (Purchasing Power Parity) adjusted GDP (Baker, Merkert and Kamruzzaman (2015). As per the present record, the country is the 19th largest exporter as well as importer among the world economy (Fleming and Measham (2015). In this context, it is essential to mention that in the South Pacific region and in Australia, the Australian Security Exchange (ASE) is the largest stock exchange that is located in Sydney. ASE has taken the 14th position in the world as per the record of market capitalization. Some of the largest companies that operate in the Australian market contribute most of the countrys economy (Baker, Me rkert and Kamruzzaman (2015). The GDP Growth rate of Australia is demonstrated in the below table: Years Growth Rate 2011 2.68% 2012 3.55% 2013 2.04% 2014 2.62% 2015 2.48% Table 1: GDP Growth Rate of Australia in past 5 years Graph 1: GDP Growth Rate of Australia in past 5 years From the above chart, it has been noticed that GDP growth rate was increased in the year 2012 and then the growth rates declined in the following year. However, the GDP again hiked up in the year 2014 and again decreased in 2015. Thus, it can be said that the Australian economy has been experiencing little uncertainty in their GDP growth rate. In the December of the year 2015, the GDP of the country was expanded 0.6% which was lower comparing to the growth rate of 1.1% in the previous quarters (Tradingeconomics.com. 2016). The consumption expenditure of the country increased 0.7% in the fourth quarter of this year. Along with that, 0.8% was increased in household spending and 0.7% was increased in the government expenditure (Tradingeconomics.com. 2016). On the other way, the gross fixed capital expenditure was decreased by 0.6% and the private investment was also declined by 1.9% (Tradingeconomics.com. 2016). The prime reason behind decreasing private investment was decline in the new engineering construction of Australian sector. On contrast, the public investment in that country was increased by 6% and the exports and imports of the goods and services rose by the same percentage (Tradingeconomics.com. 2016). Chen, Valadkhani and Grant (2016) mentioned that the agriculture, fishing and forestry business of the country make positive contribution in the countrys GDP. Above 1.3% is contributed by these sectors (Forbes.com. 2016). Apart from this, the mining sector contributed more than 1.1% due to growth in the oil and gas, coal, and iron ore industries. Besides, more than 2.7% contribution was made by the information and telecommunication sectors. The countrys rental, hiring, and real estate services contributed 2.8% and art and recreation services contributed 2.2% in the growth of the countrys economy (Forbes.com. 2016). In comparison with these industries, the country has experience a decreasing growth rate in the manufacturing sector that is 2.1% (Forbes.com. 2016). This is because of the fall in food, beverage and tobacco production, machinery and equipment production along with the production of metal products, coal, petroleum and chemicals. Furthermore, there is a decrease of 1.7% in the food services (Forbes.com. 2016). Baker, Merkert and Kamruzzaman (2015) discussed that the economy of Australia is dominated by the service sector of that country. The abundance of mineral and agricultural resources is the major strength of their economic success. Through exporting the primary products, the country has been acquiring comparative advantages. Form the above discussion; it has been found that the major portion of GDP came from the mining sector. Along with that, it is important to mention that the financial, insurance services, construction, health care, and public administration contribute the largest portion in the GDP. In this context, Baker, Merkert and Kamruzzaman (2015) explained that some factors are there that affect the GDP growth of Australia. The key factors affecting the GDP of Australia include prices of commodities, human resources, sectors outside the resource sectors. Over the last 10 years, the Australian economy has been experiencing sharp rise in terms of trade. The terms of trade is measured by the ratio of export to import prices. The higher bulk commodity prices in this respective country provide positive growth in the economy (Chen, Valadkhani and Grant 2016). In order to be more precise, the higher price of the iron ore and coking coal help the economy to rise upward. It has been mentioned before that the country has abundance of mineral resources. Coking coal and iron ore are the key inputs in the production of steel. The prices of these commodities are comparatively lower in the market of Australia which increases the demand for these commodities. Strong demand of these commo dities is driven by China and thus Australian economy has been acquiring large amount of growth from exporting these commodities (Refer to Appendix 2). Fleming and Measham (2015) stated that the massive investment boom in the economy driven the GDP with a rising curve. Along with that, the investment increases the capacity of the country. The Department of Industry and Science stated that the global iron ore trade was increased by 4% in the year 2015, where the Australias trade of iron ore was increased by 5.5% (Tradingeconomics.com. 2016). However, the growth in the fixed asset in China has declined and thus the demand for the crude steel in Australia has declined to some extent. Thus, both the high export of iron ore and coking coal and low demand of the crude steel affect the GDP of Australia (Chen, Valadkhani and Grant 2016). Following the statement of Chen, Valadkhani and Grant (2016), the human resource is one of the major factors that affect the economy of a country. It has been noticed that the major growth of Australia is found in the resource sector. However, it is important to mention that outside of this sector the growth of Australian economy appears to be soft. In the year of 2015, the overall output growth remains in the moderate level that is below the trend of 2.5% (Ft.com. 2016). As a result, the soft output growth in these sectors causes job losses and hence the unemployment rate of the country has been increasing. As per the record of the year 2015, the unemployment rate of Australia has been gradually increased with the rate 6.2% (Ft.com. 2016). It is estimated that the unemployment rate has been crossed over the expected unemployment rate. This defines that economy has higher capacity in terms of their present human resource. The increasing unemployment rate clears the fact that the econ omy has been operating beneath their capacity (Baker, Merkert and Kamruzzaman 2015). The under-utilization rate in Australian economy has been increasing (Refer to Appendix 3). The reason behind this is the labor force of the country is contributing fewer hours than they desire, which defines that considerable slack exists in the countrys labor market. This is the reason that the growth in the wages has been declining and it further restrains the disposable income (Baker, Merkert and Kamruzzaman 2015). As a result, the consumption growth in the respective country has been restricted which negatively affects the GDP of the country. Chen, Valadkhani and Grant (2016) stated that besides the resource sectors, some other sectors has been also making positive contribution in the economy of Australia. In particular, the residential construction has been developing in a rapid manner. It is expected that the growth will continue further which will make a positive impact over the economy. However, it is important to mention that the investment in residential is very small share of the entire economy and thus the contribution is quite insufficient. Apart from this, the service sectors of the country, particularly the tourism and education sector, have also been improving Fleming and Measham 2015). It has been found that the service export is the second largest component followed by the resource export. The international competitiveness of the country is the core factor that affects the demand of their non-resource export. Ha, Yi and Zhang (2015) put the viewpoint in the respect of Chinese economy. It has been discussed that the country consists socialist market economy which acquired the second largest position in the world economy by measurement of Nominal GDP. Along with that, the economy has achieved the first position by the purchasing power parity. China is the fastest growing developing country which attained 10% average growth over 30 years (Ft.com. 2016). The public sector of this country contributes the largest portion in the Chinese GDP and it has the largest manufacturing economy, which is the major difference with Australian economy. China is considered as the global hub for manufacturing and it is the largest exporter of commodities in the world economy. Along with that, the economy is the second largest importer of the commodities and one of the net importers of service products (Ft.com. 2016). In the year of 2001, the country became a member of World Trade Organization as it plays cruci al role in the international trade (Ft.com. 2016). In present, it is remarked as the largest trading nation in the world. However, in the year of 2015, the economic growth of this country has experienced the slowest growth in 25 years (Refer to Appendix 4). In the below table, the GDP growth rate of last 5 years of Chinese economy is demonstrated. Years Growth Rate 2011 9.46% 2012 7.7% 2013 7.7% 2014 7.3% 2015 6.9% Table 2: GDP Growth Rate of China in past 5 years Graph 2: GDP Growth Rate of China in past 5 years From the above table and graph, it has been noticed that the GDP growth rate is slowing down in China. In past 5 years, the growth rate was highest in the year 2011 and after that it declined much in the following year. In the year 2013, it growth rate was hiked up again and then the rate has been declining in the following years. The expected growth rate of GDP in China for next 5 years is displayed in the below table: Years Growth Rate 2016 6.49% 2017 6.2% 2018 6% 2019 6% 2020 6% Table 3: Expected GDP Growth Rate of China for next 5 years Graph 3: Expected GDP Growth Rate of China for next 5 years From the above table and graph, it is found that the expected growth rate of China would be declined further in the following years. It has been found that the GDP growth rate was increased by 6.7% in the first quarter of the present year that is lower than that of the previous quarter (Tradingeconomics.com. 2016). The growth rate in the previous quarter was 6.8% (Tradingeconomics.com. 2016). Among all the production, the manufacturing output is hiked up by 7.2% which is the largest share in the GDP growth rate (Tradingeconomics.com. 2016). The manufacturing growth is followed by the supply of electricity, gas, and water which contributed 4.8% in the GDP growth rate (Tradingeconomics.com. 2016). The growth in the mining sector is in the third position and it is measured that it contributed 3.1% in the economy of that country (Tradingeconomics.com. 2016). In the month of March of present year, the retail sale was increased by 10.5% and it was 10.2% in the previous two months. Here, it is important to mention that the growth was higher than the expectation growth rate of 10.4% (Tradingeconomics.com. 2016). Besides, the industrial production was increased by 6.8% in March that is higher than the rate of 5.4% occurred in previous two months (Tradingeconomics.com. 2016). It was expected that growth would be 5.9% which is exceeded by the present growth rate. Along with that, the fixed asset investment and property investment in this particular economy were increased by 10.7% and 6.2% respectively in the present year (Tradingeconomics.com. 2016). The discussion highlights those sectors that make positive contribution in the Chinese GDP. However, it has been found as well as mentioned in this study that the economy is confronting low growth in the present scenario. Bloch, Rafiq and Salim (2015) evaluated how the factors commodity prices, human resources, sectors outside the manufacturing sectors affect the GDP of China. The prime reason of slowing growth is the sharp fall in the commodity prices has been experienced in the economy. The commodity prices have been declining since the year 2014 (Ft.com. 2016). As it is mentioned that the country is the largest exporter in the world economy, the lower price of the commodities is the prime cause of slow GDP growth. Clear correlation has been found between the commodity prices and Chinese GDP growth rate. In this context, the biggest example is that the Chinese GDP has been growing in early 2000s when the commodity prices were rising sharply. The economy has been experiencing slow economic growth after the year 2011, when the agricultural commodity prices was fallen by 35%, metal prices by 50%, and energy prices by 70% (Tradingeconomics.com. 2016). Baum-Snow et al. (2016) discussed that the respectiv e country plays a significant role in the commodity markets. More specifically, the half of the global consumption market of pork, coal and metal is operated by China. Along with that, one fifth of the world consumption of the commodities sugar, beef, poultry, and wheat is operated by China. Besides, 5% of natural gas and 12% of crude oil are exported by China (Tradingeconomics.com. 2016). The prices of natural gas and oil have been declined by 55% and 73% respectively which affected the GDP of the economy (Tradingeconomics.com. 2016). The commodity price fluctuations made them to confront difficulties in inventory adjustment and thus it further affected the GDP of the economy. Bloch, Rafiq and Salim (2015) explained a scenario that helps to compare the economy of China and Australia. The study has found that the supply growth of the commodities drove the economy to upwards. Largest amount those commodities was imported by China that is the prime reason that the Chinese economy has been slowing. China has imported two thirds of the iron ore that they required from Australia. As stated by Ha, Yi and Zhang (2015), the human resource is the major factor that affects the GDP of the country. It has been found that the unemployment rate of China had been increasing till the period 2000s (Refer to Appendix 5) and in the present scenario the rate has been decreasing (Refer to Appendix 6). It clears the fact that the economy is effectively utilizing their human resources and still confronting slow economic growth. Besides, 15% wage growth is noticed in the urban areas which positively affect the GDP of China (Baum-Snow et al. (2016). Apart from this, the issues in mining sector of China are one of the prime reasons of economic slowdown in China. Issues regarding CO2 are the prime issue in the mining sector that becomes more of a concern. As a result, it affects the copper smelting, aluminum production and steelmaking business of the country (Baum-Snow et al. 2016). Conclusion The entire discussion has been made on the GDP growth of the countries Australia and China along with the major factors that affect the economy of both the nations. Some core differences have been found between the economy and GDP growth of these two countries. The study found that Australia is the 17th largest economy as per Purchasing Power Parity, whereas China has acquired the first position. Besides, Australia is remarked as 19th largest exporter as well as importer, whereas China is the largest exporter and second largest importer in the world economy. However, the study concludes that Australia has been experiencing positive growth rate and Chinas economic growth is slowing down year on year. It has been noticed that mining sector plays a major role in the growing economy of Australia. On contrast, the mining sector restrains the growth in China. The manufacturing sector is the strongest sector in China that contributes positive impact on the GDP growth. On the other way, a de creasing growth has been noticed in the Australian manufacturing sector. Apart from this, the study concludes that the economists in Australia are expecting upward growth in the Australian economy. On Contrast, the Chinese economists expect slow growth in the upcoming years. Reference List Baker, D., Merkert, R. and Kamruzzaman, M., 2015. Regional aviation and economic growth: cointegration and causality analysis in Australia.Journal of Transport Geography,43, pp.140-150. Baum-Snow, N., Henderson, V., Turner, M.A., Zhang, Q. and Brandt, L., 2016. Highways, Market Access, and Urban Growth in China. Bloch, H., Rafiq, S. and Salim, R., 2015. Economic growth with coal, oil and renewable energy consumption in China: Prospects for fuel substitution.Economic Modelling,44, pp.104-115. Chen, G., Valadkhani, A. and Grant, B., 2016. How useful is the yield spread as a predictor of growth in Australia?.Journal of Economic Studies,43(2), pp.222-241. Fleming, D.A. and Measham, T.G., 2015. Local economic impacts of an unconventional energy boom: the coal seam gas industry in Australia.Australian Journal of Agricultural and Resource Economics,59(1), pp.78-94. Forbes.com., 2016. Forbes Welcome. Ft.com., 2016. World business, finance, and political news from the Financial Times - FT.com. 2016]. Ha, W., Yi, J. and Zhang, J., 2015. Brain drain, brain gain, and economic growth in China.China Economic Review. Economics For Business Question: Discuss about the Economics for Business. Answer: Introduction Smoking cigarettes have been a common habit among the Australians. The adult smoking rate includes those who are daily smokers. The current adult smoking rate of the economy has relatively decreased than what it was some years earlier. This reduction in the smoking rate of the people can be a result of various reasons. Smoking is rather considered injurious to health, a practise quite famous among the young population that hampers the respiratory system of the human, thereby resulting into a number of diseases. In this essay, news on the current consumption and market for cigarettes has been analysed, which has helped in exploring the factors affecting demand and supply of cigarettes, thereby analysing the nature of the product and its elasticity (Economist.com 2016). The factors that affect the demand of cigarettes would be considered from the consumers point of view, whereas, the factors affecting the supply of cigarettes would be considered from the producers point of view. Depending upon the demand and supply of the product, the elasticity of the product would be analysed. Government measures that have been initiated in Australia that affect the production of cigarettes in the society is also taken into consideration. 2. Analysis Demand and supply of a particular product play crucial role in determining how it would be analysed in the market. Demand of a product is the want of the consumer by considering his purchasing power capacity. There are various factors that affect the demand of a particular product (Von Stackelberg 2012) . 2.1. Determinants of Demand In this context, the factors affecting the demand of cigarette are as follows : Price of cigarette price of a product is negatively related to the quantity demanded of the product. As the price of cigarettes rises, the demand for cigarette falls. Income of the consumer cigarette is not a necessity, nor an inferior good. Hence, it can be stated that as the income of the consumer rises, people are able to fulfil their demand more. Hence, income of the consumer and quantity demanded for cigarettes are positively related (Thompson and Formby 2013). Taste and preferences- taste and preferences of the people determine the demand for a product. Any person may have a personal preference for a particular product, as in this case, cigarettes. This preference might raise the demand for cigarettes in the society. Substitutes cigarettes being considered injurious to health, has been substitutes by various other innovative products that could reduce its consumption in the society. The availability of these substitutes like nicotine chewing gums and herbal cigarettes has been able to reduce the demand for cigarettes largely. 2.2. Determinants of Supply Supply side of the product determines the amount of product a producer is willing to supply in the market for sale (Armington 2013). The factors that affect the supply of cigarettes in the country are as follows: Price of the product the price of the product act gives a positive impact on the supply of cigarette. As the price of the cigarette increases, producers are walking to sell more and vice versa. Cost of inputs- cost of inputs such as cost of labour and raw materials acts negatively on the quantity of cigarettes supplied in the economy. With the rise in the cost of inputs, the production cost increase, which thereby reduces the supply of the product (Blanchard and Quah 2013). 2.3. Effect of demand-supply analysis The law of demand portrays the negative relation between the price of cigarettes and the quantity demanded, all the other factors affecting demand remaining constant. This results in a downward sloping demand curve. Comparatively, the law of supply states the positive relation between the quantity supplied of cigarettes and the price of the product. This portrays the positive slope of the supply curve. The intersection of both the demand and the supply curve depicts the equilibrium price and demand of the cigarettes in Australia. Figure 1: Equilibrium Of Price And Quantity Of Cigarettes (Source: As Created By Author) In figure 1, D and S are the initial demand and supply curves for cigarette in Australia. The two curves intersect, corresponding to which, Pe and Qe are the equilibrium price and equilibrium quantity, where the quantity demanded of cigarette is equivalent to the quantity supplied. The elasticity of a particular product measures the effectiveness of the quantity demanded of the good with respect to the change in its price. When products are elastic in nature, the change in quantity is greater than the change in price, whereas, inelastic goods show negligible change in output with a larger proportion of change in the price. Cigarette is such a good, where with a slight rise in the price, the people would reduce its consumption. Hence, it could be stated that cigarettes are relatively elastic in nature. A relatively elastic demand curve is flatter in nature as shown un figure 2. Figure 2 : Elasticity Of Demand Of Cigarettes (Source: As Created By Author) In figure 2, D is the demand curve of cigarettes which is a flatter demand curve. Initial price in P1 which correspond to the quantity demanded D1. As the price of the products rises from p1 to p2, there is a fall in the quantity demanded of the products from q1 to q2. This fall in quantity demanded is greater than the fall in price. this shows the relatively elastic supply curve where the value of elasticity is more than 1. 2.4. Government Measures Smoking cigarettes have been stated as harmful consumption made by the people that may harm the health of the consumer and develop several disease in them. The government has taken various initiatives in order to lower the consumption of cigarettes in the country. The government has take the initiatives of smoke free cares, graphic health warnings, plain packaging, products under the counter, tobacco tax, health act regulation and updating the tobacco advertising prohibition act. In many places of Australia, initiative have been taken by the government to prohibit the use of smoking in cars, especially when children are present in them. Inclusion of Graphic health warnings have been advised to all the manufacturing companies of cigarettes by the government on the packs of the cigarette boxes. his would warn the consumers before the consumption of such products. Plain packaging has been one of the most vital selections made by the government in order to reduce the attractiveness of the packet of the product and avoiding the products to keep the product below the table (The Economist. 2016). The government that have been framed in order to reduce the demand of the product has passed laws. Tobacco tax has been raised, which raises the cost of production of the people. On 1st December, 2013, the excise duty on tobacco would rise by 12.5 percent, which raises the price of the pack by $1.10. The law has been initiated by the government, which states that the excise duty on tobacco would rise after every three years. Health regulation act under the name of poisons act have been reviewed in the year 2002 (Ramsey 2012). The tobacco advertisement prohibition act has been framed by the government, which aims at imposing limitations on the exposure of Australian public to tobacco advertising through mass media forms of marketing. Figure 3: Changes To Smoking Behaviour In Australia (Source : Health.gov.au. 2016) All these methods undertaken by the government has been able to reduce the demand of consumption of cigarettes largely. This has affected the quantity demanded of the organization, thereby reducing their demand for cigarettes. People have become more fitness oriented, which violates the tastes and preferences of the consumers in the society. Conclusion The current adult smoking rate of Australia has relatively decreased than what it was some years earlier. This reduction in the smoking rate of the people can be a result of various reasons. Smoking is rather considered injurious to health, a practise quite famous among the young population that hampers the respiratory system of the human, thereby resulting into a number of diseases. The factors affecting the demand and supply of cigarettes in a country has helped in analysing the factors that have affected the market for cigarettes in the country. Cigarettes has been analysed as a relatively elastic commodity, where a slight change in price has left a greater affected on its quantity demanded. The government of Australia has analysed various measures that have helped to reduce the consumption of cigarettes in the country. This has been quite beneficial effect in the economy, yet it has affected the business of the manufacturers of cigarette in a negative way. References Blanchard, O.J. and Quah, D., 2013. The dynamic effects of aggregate demand and supply disturbances . A theory of demand for products distinguished by place of production.Staff Papers,16(1), pp.159-178. Economist.com. (2016). Cite a Website - Cite This For Me. [online] Available at: https://www.economist.com/news/britain/21646315-no-more-branded-cigarettes-pack-it [Accessed 27 Nov. 2016]. Health.gov.au. (2016). Department of Health | Tobacco Control key facts and figures. [online] Available at: https://www.health.gov.au/internet/main/publishing.nsf/Content/tobacco-kff [Accessed 27 Nov. 2016]. Ramsey, F.P., 2012. A Contribution to the Theory of Taxation.The Economic Journal,37(145), pp.47-61. The Economist. (2016). No logo. [online] Available at: https://www.economist.com/news/business/21703424-big-tobaccos-controversial-ailing-crusade-against-plain-packaging-no-logo [Accessed 27 Nov. 2016]. Thompson, A.A. and Formby, J.P., 2013.Economics of the firm: Theory and practice. Pearson Educacion. Von Stackelberg, H., 2012.The theory of the market economy. Oxford University Press.