Sustainable Economic Growth: Investigation Task……….

Case Study – Australian bushfires of 2019 - 2020

Introduction

Drought conditions in eastern states began in 2017 and spread across Australia. The high
temperatures and below average rainfall recorded by the Bureau of Meteorology (BOM)
made 2019 the warmest and driest for Australia. Professor Karoly, a leading climate scientist
from the Commonwealth Scientific and Industrial Research Organisation (CSIRO), attributed
the rise in Australian temperatures to both a range of natural phenomena and to
anthropogenic (i.e. originating in human activity) global warming trends driven by
greenhouse gasses in the atmosphere. Data from the BOM shows that Australia has
warmed by over one degree since 1910, with most warming occurring since 1950.

These factors contributed to a catastrophic bushfire season that led to a social, economic
and ecological disaster.

The ‘Black Summer’

Intense fires were experienced across Australia with more than 12.6 million hectares of land
burned according to the Department of Home Affairs. The states of Queensland, New South
Wales and Victoria accounted for the majority of that area. Tragically, 33 human lives were
lost, significant numbers of native wildlife and livestock perished, and property, infrastructure
and natural resources were destroyed.

The bushfires were challenging to extinguish because they were so big that they created
their own violent weather systems and thunderstorms that sparked new fires.

Economic Impact

The economic costs of the bushfires are significant. The Reserve Bank of Australia (RBA)
has identified some effects of the bushfires on Australia’s economic outlook. For example, it
was expected that not all property could be replaced due to insufficient insurance coverage.
As well, infrastructure like roads, energy and telecommunications assets have been
destroyed which restricts the ease with which businesses can re-establish themselves in
some communities.

In particular, tourism and agriculture have suffered in regional areas with job losses and
overseas media coverage discouraging international visitors. Economic activity and growth
have been impacted from decreased consumer spending and lower rural exports. The
negative impact on business and consumer confidence levels as a result of the scale and
uncertainty of the situation is expected to constrain future growth rates. State agencies have
initiated various marketing campaigns to encourage us to buy and visit areas to support
bushfire recovery efforts, but this has now been impacted by COVID-19 pandemic
challenges and changes in policy-maker’s priorities. The media has reported examples of
fire recovery on hold due to the coronavirus.

Tangible costs, including the cost of replacing things such as destroyed property and other
assets are substantial. They impact on Gross Domestic Product (GDP) growth with some
estimates above $4.4 billion based on previous natural disaster figures. On the other hand, it
is harder to assess the intangibles, or factors impacting on our quality of life, which is a
limitation of using GDP per capita to assess overall living standards.
There is an opportunity cost associated with resources being used for bushfire
reconstruction as opposed to being used elsewhere. There is also lost worker productivity,
injuries and shortened lives due to smoke-related stroke and cardiovascular and lung
diseases. The Climate Council reported that the bushfires are estimated to have released
between 650 million and 1.2 billion tonnes of carbon dioxide into the atmosphere which is
the more than the annual emissions of Germany. The damage to species and habitats, the
loss of livestock, grain and feed, crops, orchards and national and common access
resources like local parks is unprecedented in magnitude.

In order to prepare your case study response, you use the following resources:
 Joel Werner and Suzannah Lyons, 5 March 2020. ‘The size of Australia's bushfire crisis
captured in five big numbers’. https://www.abc.net.au/news/science/2020-03-05/bushfire-
crisis-five-big-numbers/12007716
 ABC, Four Corners, 3 Feb 2020, ‘Black Summer’. https://www.abc.net.au/4corners/black-
summer/11926142

Obtain extra information from other websites, such as:

o https://www.rba.gov.au/
https://www.rba.gov.au/publications/smp/2020/feb/box-b-macroeconomic-effects-of-the-drought-
and-bushfires.html

o https://www.climatecouncil.org.au/

o https://www.abc.net.au/
https://search-beta.abc.net.au/index.html?siteTitle=news#/?configure%5BgetRankingInfo%5D=true&configure
%5Banalytics%5D=true&configure%5BclickAnalytics%5D=true&configure%5BuserToken%5D=anonymous-ccc091d4-
0614-42ac-a66b-3b3c219e3edd&configure%5BhitsPerPage%5D=10&query=summer%20bushfires&page=1

o https://www.abs.gov.au/
https://www.abs.gov.au/websitedbs/D3310114.nsf/home/ABS+Chief+Economist+-
+Measuring+natural+disasters+in+the+Australian+economy

o https://www.wildlife.vic.gov.au/

And use your economics text for definitions and explanations of key ideas.
Using the case study material and additional research that you have conducted, answer 20
marks worth of the following questions:

1. Define the following terms and provide examples related to the bushfire case study to
show your understanding:

a. Economic trade-off

A trade-off is the opportunity cost that exists because of the decision to choose one
alternative over another. In the bushfires, this was the decision to not back burn, which has
led to these fires which have had a massively negative effect nature, as well as industry.
https://www.smh.com.au/politics/nsw/expect-worse-nsw-fire-inquiry-backs-limited-use-of-
controlled-burns-20200825-p55ozd.html

b. Common access resources

Common access resources are resources which everyone has access to, in the
sense that no one owns them, but are still a resource which is depletable. These
bushfires have reduced the common access resources of the forests which were
burned.
4 marks

2. “…Changes in Australia's climate are likely to present a more challenging

environment for many regions that rely on agriculture or are vulnerable to extreme
weather.”

Source (Accessed April 2020)

Outline how the above statement would be expected to impact on aggregate demand
and any two components.
4 marks

3. Distinguish between real GDP and real GDP per capita.

Gross Domestic Product (GDP) is a measure of the total production of a country in a

year. GDP is calculated by simply adding all the production in the country.

The term “real” refers to being adjusted for inflation. This means that it is the actual
calculation of production, instead of production. Per capita refers to adjusting for
population, which will also help demonstrate whether there will be actual increase in
living standards.

While both are a measure of production, Real GDP Per Capita adjusts for inflation
and population
3 marks
 4. Explain the importance of recovery efforts such as rebuilding infrastructure in
bushfire-affected areas on material and non-material living standards.

Firstly, it will improve material living standards, which is the access to Goods and
Services. Rebuilding infrastructure will give more access to goods and services, as
the functions served by those infrastructures will be available. Additionally, there will
be an increase as employment, as people will need to be employed for the recovery
efforts.

This will also increase the amount of non-material access, which are non-tangible
factors which influence quality of life. Rebuilding will increase the non-material living
standards, because it will increase access to healthcare, as well as decrease stress,
increase leisure time and so on which will increase the non-material living standards.

4 marks

5. Describe two limitations associated with using GDP per capita to measure changes
in living standards that are highlighted by the bushfire case study.
4 marks

One limitation is that it won’t taking into account the impact on the mental health of
people, many people who have lost their homes, their livelihoods, and their jobs will
have long-term negative effects on their mental health, which is not at all measured
by GDP.

Another limitation is the it won’t measure any work which is done on a volunteer
basis. A lot of labour, as well as production has been donated, for example, people
have been donating labour to rebuild infrastructure like fences, which are essential
for farming. This won’t be counted by GDP because it is donated.

6. “Consumer confidence levels are expected to fall as a result of the scale and
uncertainty of the bushfire situation.”

Outline how this AD factor could influence economic growth. 3 marks

Aggregate Demand (AD) is the total amount of goods and services demanded by the
economy. There are four components to AD, Consumers, Investment, Government,
and Imports/Exports. The low amount of consumer confidence will

7. “Infrastructure like roads, energy and telecommunications assets have been

destroyed which restricts the ease with which businesses can re-establish
themselves in some communities.”

Outline how this AS factor could influence economic growth. 3 marks

Aggregate Supply (AS) is affected by three conditions, which are availability of resources,
efficiency of resources and costs of production. An increase in the cost of production will
decrease economic growth. The more expensive it is to produce, the less will be produced,
which will then reduce the amount of economic growth, as it will be harder because it is more
difficult to make more goods and services.

8. Describe how budgetary policy, monetary policy or aggregate supply policies have
been used in response to the bushfires to influence the rate of economic growth.
4 marks

9. Research a business (or industry) impacted by the bushfires and write a 400 – 500
word response that shows how your business (or industry) seeks to address the
potential trade-off that exists between the pursuit of economic growth and
environmental sustainability. Evaluate whether long-term economic prosperity is
possible as revealed by your investigation.
10 marks

10. Analyse one source of statistical or graphical data that highlights a cost, such as
climate change, depletion of natural resources or deterioration of common access
resources associated with the bushfires.
4 marks

11. Identify one alternative indicator of living standards. Describe how the negative
effects of the bushfires on living standards would be demonstrated by the alternative
indicator.

One alternative measure of living standards is Human Development Index (HDI).

HDI, this uses both economic and social indicators to calculate, on a scale of 0.00 to
1.00. The bushfires have a negative effect on HDI, because not only will it have a
negative effect on Real GDP Per Capita, as well as a negative on the social side of
the Index.
3 marks

12. Explain how one policy response such as a market-based approach, direct action or
regulation could be used to address any of the environmental effects of economic
growth highlighted by the bushfire case study.

One policy which the government could attempt to implement is a Carbon Tax, this
would incentivise businesses to reduce the amount of Carbon which they produce,
based off of that they will be taxed for how many tonnes of Carbon have been
produced. A reduction in carbon output will reduce the amount of CO 2 in the
atmosphere, cooling the planet. This would be a market-based approach as it will
incentivise businesses to lower their amount of Carbon production. This will probably
not be implemented base off the fact that it was so unpopular last time it was
implemented.
4 marks