Economics Assignment: Elements that Control the Economy

Question

Task: Globally food price has increased during the past year in this context, answer the following questions:

1. Explain why the law of demand applies to food just as it does to all other goods and services,
2. Explain how the substitution effect influences food purchases. Provide some examples of substitutions that people might make when the price of food rises, and other things remain the same.
3. Explaiii how the income effect influences food purchases and provide some examples of the income effect that might occur when the price of food rises, and other things remain the same.

Prices of houses in Australian metropoliLar cities, particularly in Darwin, Sydney and Melbourne are on the rise in recent year, which is mainly due to surging land prices. In this context, answer the following questions:

1. Why is the land price rising in the metropolitan cities and what are the major drivers of rising house prices in these cities.
2. Using an appropriate diagram, expl&n your answer in part (a) above.
3. Is the supply of land in the metropolitan cties perfectly inelastic? Why? Discuss

Some Australian state and territory governments have banned or are planning lo ban plastic shopping bags due to negative externalities rising from their excessive use.

1. Describe the externality that arises from plastic containers and bags. What is Hie best way to avoid or regulate negative externalities? Discuss.
2. Draw a graph to illustrate low plastic containers and bags create welfare loss.

Answer

Introduction
Most of the people think that economics is a general academic subject, which does not have any direct or indirect relationship with the regular lives of people. However, according to the evidential data, it can be stated that economics can influence the entire lifestyle pattern of individual people and societal community. Based on the experimental perspectives, it can also be stated that economics may frame the different aspects related with lives, such as work, consumption, trends, and leisure. Besides this, human lives have also been affected by the broader trends associated with economics, such as interest rates, rates of inflation, economic growth, and many others. However, most of the people do not have any clear idea about the inter-relationship between economy and regular lives. Therefore, it is necessary to focus on various lives related events, for analysing the economic relationship. This Economics assignment focuses on several regular events, such as food price rising, property price rising, and negative externalities associated with plastic materials, for describing and evaluating the impacts of economics on these events.

Answer 1
a) Reasons behind applying law of demand in global food pricing
Law of demand is one of the most common law applicable in all types of goods and services, which depicts the factual inversely proportional relationship of ‘increasing prices’ and ‘decreasing demands’. According to the practical situations, it can be stated that people demand for the more pocket-friendly products suitable to their choices and requirements. Therefore, it can be assumed the higher price range of products and services might affect the product demand, as due to this reason the people may move to substitute services. In case of food items, Makowski et al. (2017) stated that the law of demand can be applied as the food choices of people is directly related with both substitution as well as income standards.

For example, due to the increasing price of one single type of food, people may switch to another option. Besides this, the option of substitution is also available for people, as they can switch to restaurant-based lunch or dinners instead of home-cooked meals. Apart from this, Conway & Eckersley (2017) mentioned that the income percentage may also influence the food habits of individual persons. For example, people earning 10,000 per month would not focus on restaurant-based eating habits. They may cut the amount of raw materials used in their house for regular cooking due to increasing prices. On the other hand, people earning more than 1lakh per month would easily switch towards the restaurant-based eating pattern.

b) Impacts of substitutions on food purchasing behaviour
The concept of substitution is related with the law of demands to some extent, as it represents the economic understanding associated with the two variables, price or income and consumer purchasing behaviour. The inter-relationship between these two variables can be described by the substitution effect, as the purchasing behaviour of consumers is highly regulated by increasing price or decreasing income rate. If anyone of the above-mentioned phenomenon may occur, then customers focus on substituting their expensive habits with pocket-friendly alternatives. According to the statement of Verbeke (2015), substitution effects can represent the changing patterns of macroeconomic consumptions, which can be considered as an obvious result of changing products’ prices. Through aligning the economic concepts and human psychology, it can be stated that consumers retain the habit of substituting or replacing their luxury habits, during the time of increasing price or decreasing income rate.

For example, red meat is more popular food item compared to chicken, especially in the metropolitan cities. However, people favouring red meat replacing their food habit by chicken during the increasing price of red meat. They reduce or cut the consumption of high-cost red meat and increase consumption of low-cost chicken. Therefore, in to this situation, the demand of red meat decreases, and demand for chicken increases than the previous time. Thus, in this case, chicken can be considered as a substitute good.

c) Impacts of income standards on food purchasing behaviour
Evidential information suggest that significant rise in product prices can decrease the rate of income, which can further reduce the demanding quantity of food items (Poulsen et al. 2015). People may not afford their usual food pattern while they suffer from the income crisis; therefore, they try to reduce the amount of consumption. Besides this, the income standards also affect the food-purchasing pattern of individual people. For example, aristocrat people, generally focusing on the habits of healthy and qualified food items, may try to consume cheaper and low quality foods due to income declination. Besides this, by taking another example, restaurant-owners may also become affected due to the increasing price and decreasing income of people, as they reduce their habits of going to restaurants.

Answer 2
a) Reasons behind rising land prices and house prices in Metropolitan cities
Based on a number of governmental and non-governmental reports, it can be stated that most of the metropolitan cities of Australia, like Sydney, Darwin, and Melbourne, have faced the challenges related with higher increase in property prices. Evidential information suggests that in Melbourne and Sydney, the rent of lands and houses have increased to 10.9 and 15.5% respectively, in 2009. Although Australian government has tried to implement uniformity in the property prices, however, the original picture can be considered as far away from uniformity. According to a current report, it can be stated that the price range of lands and houses have reached to 13.7% in Melbourne, 11.2% in Darwin, and 18.9% in Sydney (Why inner-city house prices have almost doubled since 2008, 2017).

Another government report has represented that the average enhancement of property price follows the compound pattern of product pricing along with a rate of 10.4%. A number of reasons are present there, which can be assumed as the possible reasons behind the increasing rents. Besides this, all of these internal and external factors also act as the major drivers behind the increasing price of houses, which are as follows-

• Supply and demand
• Economic growth
• Location
• Demographic
• Facilities and opportunities
• Fiscal inflation
• Cost of borrowing
• Drivers of property markets
• Population growth (House Prices, 2017)

b) Diagram for Answer (a)

Figure 1: Reasons behind property price rising
(Source: Created by author)

• Property cycle- The rents of property depends on a cyclical pattern as it may increase or decrease within every 8-10 years based on the surrounding environment. For example, the prices of Victoria and NSW properties have a counter-cyclical relationship with the properties present in Queensland due to the fluctuating economic condition of Victoria and NSW. It encourages the people to move from former places to the latter places (Why Melbourne’s properties will keep on rising?, 2016).
• Competitive environment- Over the past few decades, a competitive environment has been developed among the property investors of Australian metropolitan cities, based on their pricing structures related with lands and houses.
• Basic supply and demand- Evidence-based estimation represents the fact that due to the increased facilities and opportunities of lifestyle maintenance, the population of Melbourne may reach to around 4 million, approximately 25% higher in the upcoming 7 years. Therefore, the excessive growth in population requires more places for living, due to which property investors may enhance the rents of lands and houses in order to manage the basic supply and demand, for obtaining more profits (Why Melbourne’s properties will keep on rising?, 2016).
• Interest rates- Another reason behind this property price enhancement is the increasing pattern of interest rates, tax payment ratio, other associated amounts. Investors have to pay around 16-17% annual interest rates for properties, due to which the people suffer from increasing rent of lands and houses.

c) Discussion about inelastic nature of land in the metropolitan cities
The term inelastic is related with the expanded concepts of economic growth, as it is associated with the static quantity of services and products. The term ‘inelastic’ would mostly be applied at the time of fluctuating economy, especially when the prices of products or services increase or decrease. Therefore, based on the meaning of ‘inelastic nature’, the demand of land and houses is completely inelastic in nature, as the supply of land cannot be dependent on the fluctuating prices. Land or other soil-associated properties can be defined as an integrated part of the classical-neoclassical economy. Based on the inelastic supply curve, it can be stated that value of land rent would not be affected through the situational or individual factors. Especially, in the metropolitan cities, where population is always at higher percentage, no one can find the inelastic nature of land due to its continuous demands (Repeating the case fir Inelastic Land Supply, 2015).

Figure 2: Inelastic supply
(Source: Inelastic Supply, 2017)

Answer 3
a) Description of externalities arises from plastic bags and containers
Enhanced usage of plastic materials has imposed a greater threat to the entire humankind since a number of negative externalities have risen from the over-consumption of plastic materials. One of the most considerable externality of this increased consumption of plastic materials is the aesthetic damages of the lands and other natural resources, due to the reason of excessive amount of plastic waste landfills. Since the chemical compositions of plastic materials prevent easier decomposition, therefore, it causes reduction in the productive property of soil. Plastic materials has also affected the marine lives, as approximately 60 to 80% of the marine debris has been accumulated due to the extensive usage of plastic bags and other plastic-made products. Andrady (2017) stated that the central adverse impact of plastic materials over the marine animals is increasing bioaccumulation of various toxicants as well as decreasing the reproducing capacity. Besides this, the incorporation of plastic wastages in the land and marine water also cause several health issues in case of human.

Plastic materials are also related with hazardous emissions, as these can also be considered as negative externalities. Municipal Solid Wastes or MSW can cause the hazardous emissions related with plastic materials, as it releases huge amount of cyclic chlorinated hydrocarbons, which is toxic to human health. Besides this, emission of hydrogen chloride, as well as dioxins, is also considered toxic for all of the animal species. According to the statement of Law (2017), apart from this, since plastic materials are non-biodegradable, therefore proper recycling process is necessary in order to reduce the adverse effects. However, most of the business organisations do not follow the plastic recycling guidelines adequately due to less understanding and insufficient knowledge. Evidential data suggests that the recycling rate of plastic materials is still situated at 25%, whereas the recycling rate of lead-acid batteries as well as aluminium cans reaches up to 93% and 65%, respectively.

Government policies, procedures, and frameworks are the most effective interventions, which can regulate the above-mentioned externalities related with plastic bags. Government can reduce the over usage of plastic materials for reducing the adverse impacts on environment and human health. Besides this, promotion of market incentives is required to be formulated for focusing on the plastic recycling process. This can provide several job opportunities, along with saving the fuel costs as well as favouring the issues of sustainability. The research-based industry can use substitute products, such as fibres and PET, instead of using plastic materials. Rochman, Cook & Koelmans (2016) stated that plastic manufacturers and consumers need to focus on more plastic recycling process for decreasing the negative externalities. However, absence of proper and strict government regulatory framework related with plastic bag recycling is also a considerable reason behind the increasing negative externalities.

b) Graph representing plastic containers and bags create welfare loss

Figure 3: Plastic containers and bags create welfare loss
(Source: Fidelis et al., 2015)

In the above graph, the abbreviations stand for MSC= Marginal Social Cost, MPC= Marginal Private Cost, MBP= Marginal Private Benefits, and MSB= Marginal Social Benefits.

Based on the above graphical representation, indicating the welfare loss due to the increasing usage of plastic consumption, it can be stated that excessive amount of negative externalities develop from the plastic materials. The graph represents that in the situation of MSB=MSC, the market would be in an equilibrium condition. However, at present time, the graph tends to represent an equation between MCS=MPB. The triangle situated in the divergent position associated between MPB and MSB represents the welfare loss due to plastic consumption. Therefore, it is required to ban the plastic material consumption in Australia, for shifting the market to an equilibrium direction. Therefore, from the above graph, it can be assumed that potential reduction in the welfare is caused by the extreme usage of plastic materials, along with lower market equilibrium position.

Conclusion
Therefore, based on the above Economics assignment, it can be stated that economic factors may highly influence every elements of human lives. Through this Economics assignment, it has been proved that the food product purchasing behaviour of human might be regulated through law of demand, substitution effects, and income effects. All of the concepts represent that demand of products would obviously be decreased during the enhancement of price and reduction of income standards. besides this, the study has also proved that several economic factors, such as inflation rate, supply and demand chain balance, and higher interest rates, are the considerable reasons behind the enhancement of property price rising. Apart from this, it can also be mentioned in this Economics assignment that over-consumption of plastic materials also reduce the welfare loss, as the excessive usage of plastic materials cause a number of negative externalities on the human lives. Economics assignments are being prepared by our economics assignment help experts from top universities which let us to provide you a reliable assignment help australia service.

Reference List
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