Master of Professional Accounting

Student Name:-Heena Luthra

Student Id No:

Module Name: Economics for business

Module code: ECO511

Module lecturer: Dr. Murat Besnek

Assignment: Assessment 01

Date Submitted: 19 August, 2019

 CONTENT

S.no. Topic Page no.

List of Figures....................................................................

List of Tables.....................................................................

Question 01.......................................................................

Question 02........................................................................
Question 1

- Drawing on your knowledge of the theory of demand and supply-

supplemented by appropriate media reports- explain what has been
happening to the price of gas in Australia over the last ten years.

Introduction

Demand and supply are two major tools of micro economics analysis. Demand can be
defined as desire for a good for which consumer has a sufficient purchasing power or
willingness to pay for the products whereas, supply represents the quantity of a products for
which producers or sellers offer to sell at a given price.In theory of demand ,law of demand
states the relationship between the quantity demanded and the price of a commodity.The
quantity demanded of a commodity depends upon different factors of production e.g.,
consumers income ,price of the related goods ,consumers taste and preferences etc
.However ,supply for a product depends on the price of the product ,cost of the product
,future expectation about the price level etc .According to marshal, all other factors that
determine the demand of the product, remains constant, as if the price of the product
increases,demand will decrease and if the prices decreases, demand will increase. On the
other hand, there is a positive relationship between supply and price of the product as if the
prices of the products increases supply also increases and if the price of the product decreases
supply also decreases.. Before discussing about the demand and supply of certain resources in
Australia and factors other than price which affect demand and supply, the mechanism of
demand and supply in microeconomic analysis should be done.

 Mechanism of Demand and Supply

On the off chance that this demand and supply powers of market can work openly, at that
point we can get the harmony market request at balance market cost, where demand and
supply of the item is equivalent. Along these lines, demand and supply powers decide the
market cost in a free market economy, without government intervention (Pindyck and
Rubinfeld, 2005). This can be appeared in the accompanying graph of interest and supply
(Figure: - 1). In the event that there is overabundance demand in economy, cost level will
increment and with the expansion in cost level, suppliers will increase the supply, which will
satisfy the need at balance level (Hyman, 1988)

Now, if other factors of demand except its own, price change, then demand curve will shift to
upward or downward. For example, if income of an individual increases, then at the same
price level demand will increase and demand curve will shift upward and if income
decreases, then demand will fall and the demand curve will shift toward down as in figure:- 2.
On the other hand, if other factors of supply except its own price, change, then supply curve
will shift towards up or down at the same price level (McTaggart, Findlay and Parkin, 2012).
For example, if production cost of a product increases, then the supply will decrease and the
supply curve will shift towards down and if the production cost decreases, then supply will
increase and the supply curve will shift towards up, as shown in figure:- 3(Fernandez and
Lagunoff, n.d.).
In Australia, there exist various resources like rural resource, mining resource, mining
resources and so forth. However, demand supply examination for these resources in
Australia, is much same, yet there exist slight contrasts between these investigations. In spite
of the fact that the demand supply investigation for the agricultural sources is same as the
above examination, however if there should be an occurrence of mining resources and HR,
the demand supply analysis is extraordinary (Abowd and Freeman, 1991). There exist some
exogenous components of the economy which acquire various outcomes demand supply
analysis of different resources of the economy (Anon, 2015). Australian Gas market have
expanded all through the period of time. Presently if we consider, the contextual analysis of
Bowen Surat gas fields in Australia, we can see that in next twelve years, the supply of LNG
from this gas field will totally inaccessible for the local market; however there was no basic
explanation behind fall in supply of LNG. This circumstance happened totally because of an
outer reason. For this twelve years, all the gases were fully contracted through the exporting
of LNG. In spite of the fact that there was sufficient gas in the eastern hold to meet the
residential supply and there were no lack sought after zone, there was deficiency supply of
gases in the market (Musgrove and Stocks, 1985).Further more, in the event that we focus on
instrument of demand and supply of human resources of Australia, we can see that the
demand for human resources in Australian market is high than the supply of skilled work,
which results a climb in the compensation level of laborers. In any case, inspite of this high
pay level, expanded supply can't fulfill the need as there is an absence of talented work in
Australian market (Human Resource Management Australia, 1988)).Hence, form the above
analysis we can say that the demand and supply of any commodity, not only depends on the
price level of the product, but also on some endogenous and exogenous factors.

PRICES OF GAS IN AUSTRALIA

i
toria

Victorian gas market average daily weighted prices

2002 when they negotiated new major GSAs with the Gippsland Basin

ANALYSIS OF VICTORIA MARKET

Huge industrial clients in Victoria experienced numerous long years of sensibly level
genuine gas costs up to roughly 2012-2013, when the market started to encounter significant
rises in genuine gas costs. Up to 2011-2012, the level ($real) gas costs were because of a
scope of reasons including: >Competitive strain of alternate supply choices brought by the
enormous retailers in 2002 when they arranged new real GSAs with the Gippsland Basin
makers.

 The introduction of major new sources of gas supply in the mid-2000s from the
Otway and Bass basins which created a long supply market, depressed the Victorian
market and contract market prices and gives upwards pressure on gas prices under
long-term contract reviews. This new supply led to a small decrease in large industrial
gas prices in real terms during this period.
  The Gladstone LNG ventures began to affect Victorian discount costs from
2012-2013. The effect on Victoria has been not exactly other eastern states
because of a scope of reasons:
 Direct deals from Victoria to Gladstone are troublesome, given the separations
included and additional expenses of transportation and transportation
imperatives at different focuses en route. Without huge amounts of direct deals
from Victoria to Gladstone, the free market activity balance in Victoria was
not affected. Despite the troubles of direct deals to Gladstone, a few retailers
have figured out how to re-direct southern portfolio supply into Queensland
through inward portfolio gas swaps.
 The long term gas contract places of AGL, Energy Australia (EA) and Origin
Energy with Victorian gas makers and retailer competition have would in
general smother costs. They go about as an aggressive requirement for new
supply from Victorian gas makers looking for a discount gas cost.
 The 2012-2018 period is viewed as a change period at Victorian discount gas
costs. Not at all like Moomba gas costs which have quickly progressed to
LNG netbacks, have developments in discount gas market costs in victoria
been halfway obliged by various market factors. After expiry of AGL and
EA's current long term Gippsland Basin GSAs in 2017, the 2018 cost will be
the first run through since 2002 that these parties should concur another
discount cost for huge amounts of gas that isn't obliged by existing long term
value survey system.
 According to the data, the price of gas has a significant change over 10 years.
In the year 2008, the price of gas per gigajoule was $3.01. After a year in the
year 2009, the price went down significantly to $1.71. The price went down by
$1.3 per gigajoule in that year. In the year 2010, the price went to $2.34. The
price gas in 2011 went to approximately the same as in 2008 that is $3.31 per
gigajoule. In 2012 the price touched to 5 dollars per gigajoule. The price of
gas decreased to $4.1 in 2013. Later the prices keep coming down to $3.64 in
the year 2014. In the year 2015, the price of gas per gigajoule was 4.68. After
1 year there was an overthrow of the price of gas per gigajoule that is $8.83 in
2016 this was the biggest change in Australian Victoria market as demands
tends on increasing after this. In 2017 the price remains quite the same that is
8.57 dollars. But in 2019 again there was an uprising and the price was
9.43.As, price tends on increasing supply for the gas was diminishing as
buyers tends to go for alternative source of natural gas.

FACTORS AFFECTED OF RISING GAS PRICES IN AUSTRALIA

There are three major components of a typical energy bill: wholesale costs (covering
electricity being generated or gas being extracted); network charges (paying for the reliable
delivery of energy via power lines or gas pipelines); and a retail margin (paying for meter
reading and other services).

 Energy bills can likewise incorporate segments for Australian and state and domain
government-based ecological projects, for example, those planned for expanding
renewable power age. The share of every segment can fluctuate essentially crosswise
over purviews and for various sorts of clients. Anyway the expense of moving energy
and discount costs regularly represents around seventy five percent of the last energy
bills.
 DEMAND AND SUPPLY- Like the vast majority of the things you purchase, free
market activity influence the two gas and oil costs. At the point when demand is more
prominent than supply, costs rise. Seasonal demand additionally influences oil and
gas costs. You can anticipate that them should rise each spring. Oil prospects brokers
know the demand for gas rises in the late spring as families take some time off and hit
the street. Guidelines likewise require a move to summer-grade fuel, which is
increasingly costly to create. They begin purchasing oil fates contracts in the spring
fully expecting that value rise.
 Commodities Traders-. Dealers of wares like gas, wheat, and gold, additionally
cause high gas costs. They purchase oil and fuel at the items prospects markets. Those
business sectors enable organizations to purchase contracts of gas for future
conveyance at a settled upon cost. In any case, most merchants have no aim of taking
possession. Rather, they intend to sell the agreement for a benefit. Since 2008, the two
gas and oil costs are influenced more by the high points and low points in these future
contracts. The cost relies upon what purchasers think the cost of gas or oil will be
later on. At the point when merchants think gas or oil costs will be high, they offer
them up significantly higher. Along these lines, items merchants make an unavoidable
outcome. This prompts an advantage bubble. Tragically, the person who pays for this
air pocket is you at the gas pump.
 The Value of the Dollar Declines-. Gas and oil costs additionally rise when the
estimation of the dollar decreases. Oil contracts are altogether named in dollars. Oil
costs rose between 2002 and mid 2014 in light of the fact that the dollar lost 40% of
its incentive during that time. Oil costs fell between late 2014 and 2016 to some
extent in light of the fact that a strong dollar permitted the individuals from the
Organization of the Petroleum Exporting Countries to get more cash-flow while
keeping supply steady.

CONCLUSION

The most prompt thing we can do is lessen our utilization of gas by driving less or expanding
eco-friendliness. The most ideal approach to expand eco-friendliness is to keep tires Inflated.
Urban inhabitants can utilize open travel. Others can draw nearer to work to decrease driving
time. For the long term, we can change our need for oil and gas by switching to alternative
fuel vehicles.
Question-2

Drawing on your knowledge of the theory of specialisation and exchange –

supplemented by appropriate media reports – explain what the
consequences of rising energy costs will be on heavy industry in Australia?

INTRODUCTION

THEORY OF SPECIALIZATION

Specialization is an understanding inside a network, association, or bigger gathering where

every one of the individuals most appropriate for a particular movement accepts
accountability for its effective execution. Specialization can happen on both the
microeconomic level and the macroeconomic levels. At the individual level, specialization
typically comes as career or labor specialization. Every individual from an association or
economy, for instance, has a novel arrangement of talents, capacities, aptitudes, and interests
that make her exceptionally ready to play out a lot of tasks.Labor specialization help these
remarkable abilities and spots individuals in regions where they play out the best, helping
both the person, just as the general economy. If, for instance, a individual performs well in
math , it benefits both the individual and the community on the off chance that he/she seeks
after a field that depends intensely on mathematics. Specialization includes concentrating on
a particular expertise, movement, or generation process, for example, a South American
organization harvesting bananas, to turn into the expert or master.ate of the South and West,
many grain products come from the farms of the Midwest, and maple syrup comes from the
maple trees of New England. All these areas focus on the production of these specific goods,
and they trade or purchase other goods .Economies that acknowledge specialization have a
relative advanatge in the creation of a goods or service. Comparative advantage refers to the
capacity to create or produce a goods or services at a lower negligible expense and
opportunity cost than another good or service. Consider two countries producing two
products – digital cameras and vacuum cleaners.

SPECIALIZATION DIGITAL CAMERAS VACUUM CLEANERS

UK 600 600
UNITED STATES 2400 1000

TOTAL 3000 1600

Where the UK to shift more resources into higher output of vacuum cleaners, the opportunity
cost of each cleaner is one digital television. For the United States the same decision has an
opportunity cost of 2.4 digital cameras. Therefore, the UK has a comparative advantage in
vacuum cleaners. If the UK chose to reallocate resources to digital cameras the opportunity
cost of one extra camera is still one vacuum cleaner. But for the United States the opportunity
cost is only 5/12ths of a vacuum cleaner. Thus the United States has a comparative advantage
in producing digital cameras.
THEORY OF EXCHANGE

A trade is a commercial center where protections, products, subsidiaries and other money
related instruments are exchanged. The center capacity of a trade is to guarantee reasonable
and deliberate exchanging and the productive dispersal of value data for any protections
exchanging on that trade. Trades give organizations, governments, and different gatherings a
stage from which to offer protections to the contributing open. A stock trade is utilized to
raise capital for organizations trying to develop and extend their activities. The main
clearance of stock by a privately owned business to the open is alluded to as a first sale of
stock (IPO). Organizations recorded on the stock trade normally have an upgraded profile.
Having greater perceivability may draw in new clients, capable workers, and providers who
are anxious to direct business with an unmistakable industry pioneer. Privately owned
businesses frequently depend on financial speculators for venture, and this typically brings
about the loss of operational control. For instance, a seed fundingfirm may necessitate that a
delegate from the financing firm hold a conspicuous position on the board. Then again,
organizations recorded on a stock trade have more control and self-rule since financial
specialists who buy offers have constrained rights on the goods.

ANALYSIS

RISING PRICES OF ENERGY IN AUSTRALIA

Australia and the United States share much for all intents and purpose: liberal, fair
establishments; innovatively progressed, to a great extent open economies; developing
populaces; requesting foundation; or more all, bottomless vitality assets. However,
concerning vitality, Australia and the United States are on fundamentally various ways.
Australia faces a vitality emergency, focusing on family units and organizations, yet
undermining the very presence of a portion of Australia's enormous mechanical clients of
vitality. The United States is receiving the rewards of vitality blast, conveying cheap gas and
power, driving a renaissance in American assembling and financial development. In
particular: •

 Australian households and organizations pay drastically more for their vitality than
their American partners — a few fold the amount of much of the time. American
family units and organizations are provided vitality with more prominent unwavering
quality and duty straightforwardness than in Australia.

.Over the previous decade, US carbon emanations from power age have declined by more
than double the pace of Australia's outflows decrease.
 RISING PRICES OF ENERGY IMPACT ON AUSTRALIAN
ECONOMY

Monetary displaying in this report demonstrates what's in question. Since vitality is a

non-substitutable great, devoured by families and organizations alike, high vitality
expenses resonate through the whole economy. A 25 percent expansion in power age
costs and residential gas costs in excess of 33,000 Australian employments and 1.15
percent of GDP. The displaying may think little of the real effect of noteworthy cost
increments. Ongoing media and political critique centers around vitality costs for
Australian families. Be that as it may, for a globalized economy like Australia's —
with generally high work costs — high vitality costs represent a quick and desperate
danger to organizations that devour huge amounts of vitality, with assembling,
synthetic substances, and steel among the divisions all things considered hazard.
Interests in these segments is ugly missing assurance about the expenses of vitality.
Contextual analysis proof shows that a few firms will stop tasks through and through
in the event that they can't verify monetarily reasonable gas costs for 2019 and past.

CASE STUDY OF HEAVY INDUSTRY OF ENERGY

MARKET IN AUSTRALIA

Incitec Pivot

This industry deals with natural gas production in Australian market.

Compost plants use methane (the prevalent segment of petroleum gas) in the creation of
smelling salts. Incitec Pivot's (IPL) Gibson Island manure plant in Queensland utilizes 450
individuals. Its present 10-year gas understanding was set up before Australia's ongoing LNG
blast. The Brisbane office utilizes around 14 PJ of gas for every year, an expected 12 percent
of Queensland's whole mechanical gas request. As per EnergyQuest,15 under the current
understanding the gas would have been valued at around A$3.00/GJ, in addition to a pipeline
levy of around A$0.90/GJ. Be that as it may, under IPL's new interval consent to the part of
the arrangement, will pay another gas cost of around A$8.55/GJ, expanding their yearly
expenses by around A$50 million, purportedly clearing out benefits at the plant for 12
months.In exploiting the switching patterns in vitality circumstances among Australia and the
United States, IPL broadly chose to make an A$1 billion interest in the United States rather
than in Australia in 2013. As of November 2018, IPL has said in the midst of diminishing
benefits that it will close its Gibson Island plant at an expense of some A$70 million in the
event that it can't discover reasonable gas contracts.
CONSEQUENCES OF HIGHER ENERGY COSTS ON HEAVY
INDUSTRIES

So as to give further setting to what's in question in the energy debate; a Sophisticated

monetary model was utilized, enabling us to follow out the foreseen financial impacts of
huge, continued increments in energy costs in the Australian economy.

Two diverse price situations were examined:

1) A 10 percent expansion to local gas costs, discount expenses of power, and the mix of
both.

(2) A 25 percent expansion to local gas costs, discount expenses of power, and the mix of
both.

In the Ordinary course of Action, one possible impact of such cost increments to gas would
be that gas exporter’s substitute some export gas into the household advertise. However,
some portion of the issue with the ongoing activity of Australia's east coast gas market is that
this extra supply has not been anticipated. To compare value impacts and to catch the way
that substitution on the supply side by gas makers has been compelled, this probability is
intentionally 'turned off' in the demonstrating situations. The expansion in power costs is
planned to catch one of the potential impacts of silly or wrong state or government
intercessions — for instance, the presentation of strategies that animate the presentation of
low quality, wasteful age resources into the generation blend. Note that these displaying
situations are illustrative as it were. The motivation behind the displaying is to illustrate — in
an arrangement which endeavors to represent economy-wide alterations in an inside
predictable, methodologically thorough way — the extent of what is in question in Australia's
vitality banter. The outcomes are not conjectures or projections but rather situations. The
economy-wide aftereffects of the CGE displaying are accounted for beneath.

REASONS BEHIND THE RISING PRICES OF ENERGY

There are a few. For a begin, about a fourth of the normal bill is the expense of creating
vitality, or the 'discount power cost'. This has risen significantly in the recent years in light of
the fact that there is less power supply in the market and costs have therefore been pushed up.
This is expected primarily to the increasing expense of gas influencing force delivered by gas
power plants and old coal power plants shutting in South Australia and Victoria.

The cost of appropriating vitality has likewise expanded and is being reflected in rising
system charges. This is on the grounds that Australia has an incredibly huge power organize
and a great deal of cash goes into keeping up posts and wires that pass on power from power
plants to homes and organizations.
Building and putting in new parts for the system isn't shoddy using any and all means either,
however a ton of redesigns and speculations to the system, particularly in NSW and
Queensland, haven't been considered vital and have been portrayed as "gold plating". This is
because of estimates for power request being too high after the worldwide budgetary
emergency.

By a wide margin and away the littlest segment of the normal bill is the expense of producing
power through sustainable sources. This incorporates the expense of gathering the across the
nation Renewable Energy Target (RET) (going for 20% of the nation's power supply from
inexhaustible sources by 2020), or more continuous expenses of housetop sun oriented power
plans. The expense of housetop sunlight based power plans shifts from state to state as every
administration sets a feed-in tax.

CONCLUSION

Reducing or better overseeing power during peak demand times is one recommendation to
help bring down your electricity utilization. For instance, turning off appliances in the event
that they're not being utilized and doing the laundry at low peak times when power is less
expensive. Another proposal is utilizing a Smart home framework that can remotely cycle air
conditioning control systems on and off.

In the event that your power bill is as yet getting you down, at that point the most ideal
approach to battle rising retail costs is to introduce sunlight based boards and battery
storage. Regardless of whether despite everything you have to utilize some power from
the grid to top up, sun powered boards will help to altogether decrease your power
utilization. Numerous mortgage holders are finding that exchanging over to sun
oriented boards is a lifeline when peak demand power costs are experiencing the
rooftop. In the long term, if Australia needs to reduce energy costs and carbon outflows
while maintaining quality, it should build the supply of cheap local gas. The US
experience makes this self-evident. The US shale insurgency — joined with the strategy
settings and foundation encouraging it — has permitted US gas and energy costs to stay
level or become lesser after some time for homes and organizations. With its drastically
lower carbon impression in respect to other petroleum derivatives, natural gas is a
'connect fuel' between the norm and a sustainable future. An expansion in the portion
of gas in US vitality utilization — expanding to 36 percent of petroleum product
utilization from 27 percent in the past decade — has seen the United States as of now
accomplish Paris Agreement emission reduction focuses in its power sector.
REFERENCES

Abowd, J. and Freeman, R. (1991).Immigration, trade, and the labor market. Chicago: University of
Chicago Press.Anon, (2015).

Fernandez, J. and Lagunoff, R. (n.d.).Three Essays on Microeconomic Dynamics.

Human Resource Management Australia. (1988).Asia Pacific Journal of Human Resources, 26(1), pp.113-
114.

Micro economics

https://www.aer.gov.au/

https://www.energy.gov.au/sites/default/files/gas-price-trends-review-report-revision2-mar-
2017_pdf_5913_kb.pdf
https://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/
pubs/briefingbook44

https://www.ussc.edu.au/analysis/australias-energy-crisis-americas-energy-
surplusp/energyprices
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