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ECO10250: Economics - Solar-Powered Motor Vehicles - The Local Cinema - Assessment Answer

January 14, 2017
Author : Ashley Simons

Solution Code: 1ADIB


This assignment falls under Economics which was successfully solved by the assignment writingexperts at My Assignment Services AU under assignment help service.

Assignment Task

Question 1

Explain the link between scarcity, choice and the production possibility curve. In your answer use graphs and include a description of the three concepts in your own words

Outline the major factors that determine the type of economic system existing in a country. Based on the factors you noted above, describe the principal differences between the Australian economy and the Chinese economy .

Question 2

a. There has been a breakthrough in the manufacturing of solar-powered motor vehicles that will substantially reduce their costs of production. Use demand and supply curves to illustrate what will happen to:

i) the equilibrium price and quantity of solar-powered motor vehicles.

ii) the equilibrium price and quantity of conventional motor vehicles.

In an attempt to increase the use of solar-powered motor vehicles the government decides to set a minimum price for solar-powered vehicles that is below the market price. Do you think this is a good idea? Explain your decision using graphs.

Question 3

Explain what will happen to consumer and producer surplus and deadweight loss if the government imposes a tax on sellers for each radio they produce in order to raise government income? Include in your answer an explanation of the three concepts – consumer surplus, producer surplus and deadweight loss.

Question 4

The local cinema wants to increase its total revenue. It is considering the introduction of a 10% discount to locals. The company has estimated that there are two types of local customers who will have different responses to the discount offer. The likely responses of the two groups are shown in the table below.

Group A

(ticket sales per week)

Group B

(ticket sales per week)

Ticket sales before the 10% discount



Ticket sales after the 10% discount



i) Using the midpoint method, calculate the price elasticities of demand for Group A and Group B.

ii) Explain how the discount will affect total revenue from each group.

iii) Should the company offer the discount if it wants to increase its total revenue.

iv) Describe the impact on the demand elasticity for the original company when another cinema opens in the town.

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Australia was often called the lucky country but the country is now running out of luck. The economy is now undergoing huge structural transformation. Australia has demonstrated significant economic progress during the last two decades. Economists believe good management as well as good luck favored Australia to reach to such an economic height. But the luck is running out today. Australia was one of the major exporters of mineral resources like coal and iron ore. Mining investment was at peak and the expansion of output from giant mines in Western Australia has made the export figure healthier. China was the largest export market for Australia. The economic woes in china have hardly hit Australia’s exports and their domestic earnings. Australia is the only developed country where the unemployment is rising. The wage growth as well as the productivity growth is lagging significantly. As an immediate impact, the standard of living is slipping down. The economy is desperately looking forward to diversify the key drivers of economic growth.

The economic health of any economy can be assessed with the help of analyzing the key macroeconomic indicators. This report takes into account four major economic indicators in order to have a broader economic outlook of the economy. The four indicators are: real GDP growth rate, unemployment rate, inflation rate and the terms of trade. The primary objective of this report is to gain a deep insight of Australian economy and their performance. The report further puts an attempt to review the policy response of Australian government and RBA to combat the current economic challenges.

Let us collect and analyze the data for key macroeconomic indicators:


After 24 years of uninterrupted growth, world’s one of the biggest economy is now experiencing an economic slowdown. The officially published data indicates that the economy is almost stalled – the current growth rate of the economy is really disappointing. While the economy like US is growing at a solid pace, the resource rich nation is moving at a very slow pace. Decade long mining investment boom have a downfall on one hand and lower export prices have reduced the export revenue on the other (the economic Times, 2015).



Unemployment rate is considered as one of the primary indicator to assess the labor market performance of the economy. Unemployment rate currently pose a huge economic challenge to Australia. According to the officially data published by Australian Bureau of statistics, the unemployment rate has reached to more than 6%, highest during the last 13 years. Australia is identified as the only developed economy where unemployment rate is increasing. Consumer confidence as well as business confidence is squeezing due to weak wage growth (Farrer M, 2015).


We have drawn the trend line for the inflation rate of Australia that clearly shows a downward trend. A persistent fall in oil price and the falling global commodity price largely accounted for this downward trend. RBA has kept the target level for inflation at 2-3% level but failed to keep the price stability. The inflation rate has come down below the target level which is not a positive sign for a healthy economy. RBA and Australian government must address the issue of low inflation and accordingly change the policy directives with strong focus on more fiscal stimulus. (Mitchell B. 2016).


The terms of trade data has shown a significant fall in the recent years. As the economy opens up to the global market it has reduced the import tariff substantially. While the import tariff was as high as 30% level, gradually it came down to only 5%. Due to fall in import tariff, the market is flooded with cheap products. Imports have significantly increased while the weak demand from China has hardly hit Australia’s exports. China’s slow down provides clear indication that Australia’ export demand will remain weak at least in the short term.

Recently the consumers in china developed the taste and preference for Australia’s raw milk and the dairy industry has started to export the fresh milk to China. On the onset of falling exports of mining and agricultural output, the service exports of Australia have shown a boost in the recent times. Australia has obtained a comparative advantage in the service industry: tourism, higher education and health care are the key service exports of Australia that helps to increase Australia’s exports. There is a surge in demand for Australia’s service industries in emerging economies of Asia and the demand is expected to remain strong in the coming years. Tourism and higher education has outpaced the iron ore exports and become the biggest foreign income earners. (Pascoe M 2015).

Policy response:

RBA is responsible to formulate and implement the monetary policy response suitable to the economic environment of the economy. In order to stimulate the aggregate demand of the economy, RBA has cut the interest rate for few times. RBA has kept the target inflation level at 2-35 and has kept the target level unchanged in recent year.

Glenn Stevens, RBA government has announced a further slash in cash rate by 25 basis points and bring the interest rate to a record low level of 1.5%. He confirmed that developments of housing market dominate RBA’s decision to cut the cash rate. The board has carefully considered the housing market developments while taking such an important decision. The key aim is to stimulate housing credit growth. Moving forward, RBA is predicted to diversify the policy response and implement the policy reforms to bring price stability and restore full employment level of output ( Janda M, 2016)


Recommendations and Conclusions

Australia is currently facing several economic challenges. The drastic fall in demand for exports due to china’s slow down, falling commodity prices, tepid job growth, acute crisis in manufacturing sector, complete shutdown of automobile production, consistent fall in the value of Australian dollar against USD are some of major challenges to be worth mentioned. While the manufacturing industry and the automobile industry have very bleak future in Australia, the service sector is growing at an accelerating pace. The devaluation of dollar help to boost Australian exports, Chinese travelers is finding it less expensive to explore the beauty of Australia than before. Tourism industry is booming and China becomes the largest market with huge potential. Today service sector constitutes a major share (approximately 68%) of Australian GDP. On the positive side, the housing prices in Sydney and other metropolitan cities are rising at a rapid pace (Palmer D. 2016).

Actually economic contraction in china plays the pivotal role in hurting Australian economy. Since the country was over dependent on china for its export demand, China’s slowdown has put the economy more vulnerable to economic shock. Iron ore has seen the largest price decline in 2015. But the supportive monetary policy of RBA and the weak dollar is expected to of set the downside factors. It has been predicted that commodity exporter economy like Australia will observe a fall in foreign earning and a drag on economic growth but the suitable policy response and the currency depreciation might offer some cushion. According to Professor Fabrizio Carmignani of Griffith University, the future outlook for Australia remains fragile despite some improvements in the domestic service sectors. He further advocates that Australian government must consider with sincere concern the consequences of tightening the fiscal policy in the upcoming budget. Economic expansion in US may provide some economic benefits to Australian tourism industry. But Australian government must reduce fear and uncertainty from the mind of the people and ensure to boost their confidence on the political process. Political climate has significance to economic risk in Australia (Westerman H & Creagh S , 2015).

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