Economics

Part 1: Firm Perspective Source 1:

Matthew Raggatt

It's the seemingly inevitable cost that goes with being handed a university degree, but two Canberrans have done their bit to save well-dressed students money on graduation day.

As the debate over deregulation and soaring degrees costs continues around the nation, Australian National University (ANU) alumni Eric Liu and Haosi Zhang have started their own business selling discounted academic gowns. Their challenge to the established market appears to have forced a 30 per cent price cut from the University of Canberra.

Mr Liu, 25, now studying a masters in law, said the pair's UniGowns business began in July and was motivated more by saving students than making profit. -Basically the idea came from some of our friends at the ANU and UC who were complaining about how ridiculously expensive [graduation gowns] are,- he said.

-We think of it as a business to challenge the universities' UC Union monopoly [previously there was only one supplier for ANU Australian National University] and collapse the price.- A gown, hood and mortar board are a mandatory part of graduation ceremonies around the nation. UniGowns sold about 30 of their $89 sets in the company's first outing at the UC graduations last month.

Mr Liu said the university has dropped their hiring price for the set from $130 to $110 as a result, which includes the mortar board to keep, but went further to offer a special $89.95 purchase at the October graduation.

The UC Union, a wholly-owned entity of the university, has previously been the exclusive seller of the graduation wear.

Union chief executive Joe Roff could not be reached for interview this week, but said UC welcomed competition particularly where students benefit.

Source: http://www.canberratimes.com.au/act-news/students-trim-university-of-canberras-academicgown-price-monopoly-20141108-11ho19.html

1. Based on the article what market form did the market for graduation regalia (a gown, hood and mortar board) at ANU most closely resemble before Mr. Liu started his UniGowns business? Why? Represent this using an economic diagram and the relevant price from the article.

2. Once the students started their rival business (UniGowns) what form would the market for a graduation set at ANU have taken? Explain your answer with reference to theory. How does the price and quantity in this market compare to the price and quantity before the students started this business?

3. Describe a business that you and your friends can start this year. What market form (i.e. monopolistic competition) is the market you want to operate in? How will this market form affect your profits? Draw a diagram to represent the market your business will be operating in and your individual cost curves. You will need to do some research here.

Part 2: Macroeconomic Perspective

The Economy

The RBA has lowered its growth and inflation forecasts for the year ahead, citing its expectation that mining investment will "decline much further" and budget cuts at the state and federal level Photo: Glenn Hunt

A deepening gloom across the largest developed economy to escape recession during the global financial crisis is shaping up as one of the toughest challenges yet for Reserve Bank of Australia chief Glenn Stevens.

Australia's misery index - the sum of unemployment and inflation rates - is at 9.0, the highest since 2008, when the collapse of Lehman Brothers Holdings froze credit markets around the world and triggered the deepest recession in the US since the Great Depression.
Elevated unemployment

Since those numbers were issued, the unemployment rate has jumped to a 12-year high of 6.4 per cent...

The Australian unemployment rate surpassed the US level last month for the first time since 2007. The American misery index was 8.2 for June and for Britain it stood at 8.3.

Australia's central bank also lowered its growth and inflation forecasts for the year ahead, citing its expectation that mining investment will "decline much further" and budget cuts at the state and federal level. Prime Minister Tony Abbott's government is cutting jobs and spending and raising taxes to tackle a budget deficit estimated to have swollen to $49.9 billion in the year to June.

The economy's spare capacity has meant private-sector wages grew at the slowest pace on record in the second quarter, statistics bureau data showed last week, while the RBA has forecast inflation will cool from 3 per cent last quarter assisted by the government's scrapping of a carbon tax....

Read more: http://www.smh.com.au/business/the-economy/australias-misery-index-at-a-sixyear-high-20140818105aqe.html#ixzz3AzABLpyc

1. Why might the misery index consist of measures of unemployment and inflation rates? What are the negative consequences of high unemployment (especially cyclical unemployment if it persists for a long time) and high inflation for the economy?

2. Based on the information in the above article and your own research what is likely happening to Australia's real GDP in 2015? Explain why with reference to theory.

3. Use an aggregate demand and supply model to demonstrate where the Australian economy is currently operating in relation to full employment and explain the reasons for this. Based on your diagram, the above sources and your research what phase of the business cycle do you think the Australian economy is currently in? Explain your reasoning.

4. Based on your research what type of fiscal policy is the government pursuing at the moment? Do you believe this is appropriate given the state of the economy at the moment? Explain why or why not with the aid of a diagram.

5. Based on your research what type of monetary policy is the RBA pursuing at the moment?