Apply Economic Principle to Work

Topics: Inflation, Economics, Investment Pages: 6 (1458 words) Published: April 11, 2013
a 1. a. Percentage Change in Quantity = (12,000 – 8,000)/8,000 = 0.5 x 100% = 50% Percentage change in price = ($150 - $120) / $120 = 0.25 x 100% = 25% Price elasticity = 50% / 25% = 2%

b. Elastic, because when the price rises the quantity goes down, and also when the price goes down the quantity goes up.

2. a.

P1 E1


b. P2 E2

P1 E1

Q1 Q2
Expl : Because of lower taxation, it will make higher disposable income of costumer causing consumption rise and therefore aggregate demand and economic growth rise.


P1 E1

P3 E3

Q1 Q3
Expl : Technology can help increase productivity by using resource more efficiently. Mechine can often make high things more quickly and cheaply than human can.

3. a. If inflation has increased in the economy
a) The international competitiveness will decrease. Inflation is an economic problem that has negative impacts on the level of economic growth as well as international competitiveness b) The real income will decrease. If inflation is not compensated by nominal increases of income, people become poorer. High and variable inflation makes economic price forecasting more difficult and decision-making processes may be negatively affected. Extremely high inflation attracts too much daily attention from households and decision-makers, distracting them from more important tasks. c) The level investment will decrease. Sustained inflation is damaging to long-run growth and the financial system in general. Increases in inflation lead to lower real returns not just on money, but on all other assets too.  These low returns interfere with the functioning of financial markets and the allocation of investment.  Lower real returns have the effect of severely damaging the credit market.  As a result, higher inflation contracts the supply of credit available to fund capital investment damaging the economy b. Inflation targeting :

I. By targeting inflation the RBA can give firms and consumers in the economy a reliable gauge as to what inflation will actually be, taking the uncertainly out of the equation and stopping the economy from entering a wage-price spiral. II. Successful inflation targeting can stop an economy from overheating in a boom or peak. If the RBA is able to keep inflation in check, longer periods of steady economic growth may be possible.

4. If the cash rate has decreased
a) It will change all of the component of aggregate demand. The consumption will goes up because of the decrease of the cash rate, will make higher consumption. Will make investment goes up as well as consumption because of the low rate, and a chance of investor to invest more. But it will make spending and export goes down, Government will give more saving and will not do a lot export. b) The effect because of the decrease of cash rate to Economic growth will cause economic goes down because the government will keep saving . The unemployment rate will get higher, because some company will cut some budget and will cut some employee to keep saving the company soending. The inflation goes up, the cash get down and the price of item in the market will get up.

5. Calculate the prize :
d) $50, 000 + ( $50,000 x 8%) = $46,000
e) $11,500 x 5 = $57,500
$57,000 + ($57,000 x 8%) = $52,900
f) $1,500 x 12 x 3 = $54,000
$54,000 + ($54,000 x 8%) = $49,680
Its better for Edge to get prize B.
Year| Net Profit before tax| After Depreciation| After tax| Annual Cash flow| 1| $50,000| $30,000| $21,000| $41,000|
2| $50,000| $30,000| $21,000| $41,000|
3| $50,000| $30,000| $21,000| $41,000|
4| $50,000| $30,000| $21,000| $41,000|
5| $50,000| $30,000| $21,000| $41,000|

After Depreciation = 50,000 –...
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