ECON6000 Household Wealth Prior to Covid-19 Assignment Sample

Economic Principles and Decision Making

Contents

Economic Concepts.

Different Concepts of Costs.

Role and Impact of the Government in the Australian Economy.

Economic Concepts

I have always been fascinated by the concepts of economics that I have studied in class and read in books. I always wanted to interpret these concepts and how these are used in real-life situations. Additionally, I was curious to understand how these concepts are used by economists in handling various situations like in the central banks, in the monetary policy, or the fiscal policy announced by the government. Some of the concepts are defined here-

Money- Martin (1971) elaborates on the concept of money which is widely accepted as a means of payment. As I have understood it, it was difficult for the barter system to exchange things because the variability was much less compared to the needs of the economy and the people. I have also read in history that the conversion of barter system through money was important because, for instance, if I want to have a commodity, the other may not require the items I would have to exchange with. I understood that the money concept allows a person to have 100% scope of exchanging anything ready to be exchanged.

Strength of money- Money is a thing or material that is popularly accepted as a method of payment. For example- the Australian dollar has been, by law, accepted as a medium of exchange in Australia. US dollar, on the other hand, has been accepted as a medium of exchange internationally. I would be left wondering what made the U.S dollar worthy of this status and importance. I have always wondered in class why the government cannot print more money and distribute it among its citizens - this was my solution to eradicate poverty. I have made a make-believe economy as a game wherein we would have things and money of the same value. When we increased the amount of money while keeping items the same, noticed that we were all ready to purchase everything available to us and resultantly nobody sold anything and our exchange eventually stopped. It was one little loss of overvalued money that I have managed, though there are others as economists say.

GDP- Gross domestic product is the total sum of goods and services produced in a country, and that the money available in the country must be coinciding with the total value of GDP. More printed money than GDP value could amount to incessant inflation (Dynan & Sheiner, 2018). This can lead to a sudden decrease in the value of money in the international market and the economy of a country may collapse and a new currency may be required like what happened in Zimbabwe in 2008. Thus, with this example, I gained a better understanding of a parallel growth of money with growth in the value of goods and services.

Unemployment- Unemployment is a concept of macroeconomics that tells us how many people who are willing to work are unemployed in a territory; say in a country (Jingan, 2007). There are certain categories of unemployment which include classical, frictional, structural, and seasonal, etc. I realized that increasing unemployment is one of the core reasons for economic recession and the government should employ the public to revive the demand and ultimately to revive the economy.

Monetary policy- Adams et al, (2020) explain that monetary policy is announced by every central bank of a country which decides the general interest rates and the amount of circulation of money and credit in the market following the potential of the economy and any future risks and threat. I have read that many central banks are decreasing their interest rates, RR, RRR, CRR and are announcing an economic package to boost the economy in this time of recession caused by COVID-19. I have read that these economy boost packages advocated that during the times of recession, austerity is not the solution but the economic boost by the government will save the economy, which is what I have read about the USA in the great depression of 1925.

I have studied in class about various concepts of costs and that how much these costs can affect the economy and the inflation levels and the firms.

Different Concepts of Costs

Accounting and economic costs- I have given a thought on the concepts of costs that have been illustrated and why these costs are differentiated and what is the need for such costing. These costs are the total money that a firm incurs in producing a commodity. 

Implicit and explicit costs- Payments that are made to outsiders like the suppliers and commissions are considered as explicit costs and that have the importance of calling such costs, as they are many times in accounting considered for certain decisions and calculations. Then there are implicit costs which are the costs that a firm incurs out of its resources and services (Paler & Raftery, 1999). I have concluded that if the company wanted to cut costs from its efficiency then a separate inspection of only implicit costs is necessary to be examined. This helped me better understand the concept of implicit and explicit costing segments.

Production costs- Jingan (2007) explains fixed costs which are called supplementary costs by Marshall and are not related directly with the production, are those costs that remain unchanged in the short term with the variation in the production. In the long run, these costs could be changed with variation in production. Variable costs change directly with a change in the production units as these costs are directly related to production such as raw materials, packaging, transports.

Real costs- Marshall says that the hidden costs are also incurred by various personnel for production. The efforts and sacrifices undergone by many staff do not count in, but they are the real costs of production, alight job or an unpleasant job could carry the same salary. I have concluded that the concept of real costs coincides with the uncounted value of the housework of women which contributes to the economy in the form of facilitation to the workforce members of the house.

Opportunity costs- Resources are that much not available to be used for every desired thing. Some production has to be sacrificed for some other. Armen (1969) says that opportunity costs of anything are the next best alternative that could be produced by the same alternative, with the same factors, resources, and costs. I imagined that fruit and milk products used in the cosmetic industry have a negative opportunity cost, as if these were fed to the poor, they could be used productively for the economy.

Private and social costs- Private costs are the firm's implicit and explicit costs but production activities sometimes may lead to social costs. For example, I noticed that today's sustainability issues are talked about because sustainability harmed by industrial production has been a social cost of production.

Role and Impact of the Government in the Australian Economy

The fiscal policy of Australia is made by the Australian government and fiscal policy for the year together with the monetary policy frames the basic structure of the economic functioning of Australia (Adams et al, 2020). There are five key economic functions which the government of Australia does concerning the economy-

Reallocation of resources- which includes labor, capital, finance, entrepreneurship. The government can reallocate these resources by utilizing taxation and subsidies (Novak, 2013). However, in my view, the government does only adjust the previous years' allocation of resources and that a new zero budget and fiscal policy are needed especially in these difficult times.

Redistribution of income- Redistribution of income is done primarily based on budget and taxation changes in Australia. I think that these are the times when an ample amount of income is needed to be given to Australians so that their purchasing power increases and Australia can save itself from recession.

Stabilization of the economic activity- Stabilization of the economic growth, thus making it less volatile is the job of the Australian government with the support of the central bank (Novak, 2013). Policymakers here monitor the business cycle, can manipulate the aggregate demand and supply, and make adjustments to monetary and fiscal policies to create sustained and stable growth.

Government enterprises- Otto (1997) says government enterprise is by and large the monopolistic market holder in their domain in a particular country, because they have the support and management of the government. I think it's time that the government should privatize these enterprises so that their loopholes are cleared and can avail optimum utilization of the resources available, as these enterprises have a large chunk in the economy.

Other functions- which include competition policies, environmental policies have a direct impact on the economic functions of Australia as these laws carry various economic responsibilities with them. In my view, this is the time of change in the focus temporarily shifting from sustainable development to saving the Australian economy from recession in particular and world economy, in general. Thus such laws may be suspended temporarily. I can see now that the economic understanding is according to me, the most important study and that its clear conception and rightful application can lead to maximum productivity from a person to the nation.

References for Economic Principles and Decision Making

Adams, N., Holland, C., Penrose, G. & Schofer, L. (2020). Household Wealth prior to COVID-19: Evidence from the 2018 HILDA Survey. Rba.gov.au. Retrieved from https://www.rba.gov.au/publications/bulletin/2020/jun/household-wealth-prior-to-covid-19-evidence-from-the-2018-hilda-survey.html

Armen, A. (1969). Cost. Encyclopedia of the Social Sciences 3. Retrieved from http://www.econlib.org/library/Buchanan/buchCv6.html

Dynan, K. & Sheiner, L. (2018). GDP as a Measure of Economic Well-being. Retrieved from https://www.brookings.edu/wp-content/uploads/2018/08/WP43-8.23.18.pdf

Jingan, M.L. (2007). Product pricing. Microeconomic Theory 6. Published by Vrinda Publications, New Delhi.

Martin, S. (1971). A theory of money and financial institutions: Fiat money and noncooperative equilibrium in a closed economy. International Journal of Game Theory 1

Novak, J. (2013). Economic consequences of the size of government in australia. Retrieved from https://researchbank.rmit.edu.au/eserv/rmit:160380/Novak.pdf

Otto, G. (1997). Productivity Growth and Economic Policy in Australia. Aph.gov.au. Retrieved from https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/RP9697/97rp19

Palmer, S. & Raftery, J. (1999). Opportunity cost. US National Library of Medicines. doi: 10.1136/bmj.318.7197.1551

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