Short Answer Questions Based On Economic Theory

Short Answer Questions Based On Economic Theory

Contents

Part 1: Firm Perspective. 1

Part 2: Macroeconomic Perspective. 3

Henry, K. (2010), “The Australian banking system – Challenges in the post global financial crisis. 6

environment,” Viewed May 31,2013, 6

 

 Part 1: Firm Perspective

  1. What type of market do Australian Banks operate in? How has the Global Financial Crisis affected competition in this market?

Australian banks operate in an oligopoly market. This is a type of market structure where there are few sellers selling products that are almost identical and cooperating in placing barriers to entry. Australia banking sector is dominated by four major banks, namely, Commonwealth Bank, Westpac ANZ and NAB (Henry, 2010). These banks have expanded collectively across a variety of loan and deposit products and operate in a manner that makes it difficult for other banks to expand in this market. The recent global financial crisis led to increased consolidation among Australian banks to hedge against the impact of such crises in the future.

  1. Assume the biggest four banks in Australia decided to collude and agree to charge a higher price on banking products. Graphically demonstrate the price and output in this market and explain your diagram.

In an oligopoly market, firms operate under imperfect competition. The sticky upward demand curve creates fierce price competitiveness which leads firms to use non-price competition in order to acquire greater market share and revenue (Dixon, 2009, p. 17). Figure 1.0 shows the relationship between price and output in an oligopoly market

Figure 1.0 Relationship between price and output in an oligopoly market

Above point E, demand is elastic and other firms have an advantage since their prices remain unchanged. Below that point, demand is inelastic as other firms will also reduce their prices, leading to price war (Dixon, 2009, p. 17). By colluding to charge a higher price, the biggest four banks would be operating above point E. These banks are going to lose market share to the smaller banks since demand is elastic above the kink.

 

  1. How and why is the government seeking to increase competition in the banking sector? Explain your answer with reference to the diagram you constructed in Question 2

The government of Australia is seeking to increase competition in the banking sector by introducing measures such as developing programs that enhance consumer awareness, enhancing transfer of consumer mortgages and deposits, banning exit fees on home loans, supporting building societies and credit unions and enhancing disclosure of mortgage loan products (Henry, 2010). The main reason for doing so is to weaken the oligopolistic power held by the biggest four banks. This will ensure that the biggest four banks operate at point E on the curve in question 2.

 

Part 2: Macroeconomic Perspective

Global & Australian Forecasts (2013) indicate that Australia Gross Domestic (GDP) is likely to rise by 2 percent in 2013. In April 2012, Deloitte Access Economics predicted that Australian GDP would rise by 3% in 2013 sparked by increased spending on engineering construction. As Romer (2000, p. 47) explains, a rise in GDP in an economy leads to a rise in aggregate demand (AD). As a result, the AD in the aggregate supply and demand curve will shift to the left, as shown in figure 2. Equilibrium point will shift from point A to point B, leading to an increase in prices from p3 to p1. In other words, the expected increase in spending will lead to a rise in the date of inflation in Australian in 2013. As well, an increase in aggregate demand has a positive effect on growth in GDP. However, the rise in interest rate may lead to lower levels of investment, which may slow the growth in GDP. Lower investment rate also means that less people are employed and hence, the unemployment rate is likely to rise.

Figure 2. Aggregate supply and demand curve

  1. a) The unemployment rate in November 2012 and in March 2013

November 2012

Unemployed = 668,700 persons

Labour Force= 11,500,500 +668,700 = 12,169,200 Persons

Unemployment rate = %

 

March 2013

Unemployed = 692,000 persons

Labour Force = 692,000 + 11,300,500 = 11,992,500 Persons

Unemployment rate =  %

 

  1. b) Labour force participation rate in November 2012 and March

 

 

November 2012

Labour force = 11,992,500 persons

Working age population = 19, 609,900 persons

 

 

March 2013

 

Labour force = 12,169,200 persons

Working age population = 19, 587,300 persons

 

  1. c) Conclusion based on figures derived in a) and b)

The figures derived in a) show that unemployment rate has increased by around 0.3 percent from November 2012 to March 2013. This implies that the number of unemployed persons has increased at a higher rate than the rate of increase in the labour force and thus, this is a negative change. The figures derived in b) indicate that labour participation rate has increased by around 0.9 percent from November 2012 to March 2013. This implies that more persons who could not work in November 2012 have joined the labour force and hence, this is a positive change.

References

Dixon, H., (2009), Oligopoly theory made simple. Viewed May 31, 2013

<http://huwdixon.org/SurfingEconomics/chapter6.pdf>

“Global & Australian Forecasts” (2013). Viewed May 31,2013 <http://business.nab.com.au/global

australian-forecasts-january-2013-2639/

Romer, D. (2000), Advanced Macroeconomics, McGraw-Hill, New York

 

Henry, K. (2010), “The Australian banking system – Challenges in the post global financial crisis

environment,” Viewed May 31, 2013,

http://www.treasury.gov.au/PublicationsAndMedia/Speeches/2010/The-Australian-banking-system

 


Get Professional Assignment Help Cheaply

fast coursework help

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Our essay writers are graduates with diplomas, bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.

Why Choose Our Academic Writing Service?

  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently

How It Works

1.      Place an order

You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.

2.      Pay for the order

Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.

3.      Track the progress

You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.

4.      Download the paper

The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.

 

smile and order essaysmile and order essayPLACE THIS ORDER OR A SIMILAR ORDER WITH MAJESTIC GRADES TODAY AND GET AN AMAZING DISCOUNT

order custom essay paper