MAE101: Microeconomic Implications of the Australian Mining Boom - Economics Assignment

Internal Code: MAS6238

Economics Assignment:

Mining has been traditionally contributing to the Australian economy since around the mid-nineteenth century, with Silver and Copper discovered in South Australia, followed by discovery of other minerals including Iron, Coal, Gold and Uranium which led to a significant rise in the export of these minerals, as well as migration of people from various parts of the world over time. Over the past years, Australia has experienced a number of extended periods of increased mining output, with the latest mining boom occurring at the outbreak of the twenty-first century, lasting for about 10 years. With the advent of the new millennium, as Australia started to discover new mineral resources including those of iron ore and coal, there was also a massive surge of demand for these minerals from fast-growing economies such as China, causing the prices of minerals to generally rise. Over the period of Australia’s recent mining boom from 2002 to 2012, mining exports more than tripled and mining investment as a proportion of GDP increased from 2 percent to 8 percent. Real household disposable income and real wage increased by 13 percent and 6 percent, respectively with unemployment falling by about 1 and a quarter percentage points. The growth in the mining production and exports also led to the large appreciation of the Australian dollar with some limited impact on the firms in other industries such as manufacturing and agriculture.

Question:

1) Use a diagram to show and explain how equilibrium prices and quantities in the mineral ore market change due to the mining boom.

2) Explain the possible effect of the mining boom on the Australian housing market. Use diagrams to elaborate your answer.

3) Which economic theory helps explain Australia’s export of minerals during the mining boom to overseas, say to China, and imports of televisions from China? Explain your answer.

4) Suppose there has been an advancement in wheat farm technology during the mining boom. What will be the effect of this technical advancement, ceteris paribus, on the market for bread? If you are the owner of a bakery, what would be the effect of this market outcome on your bakery’s revenue? Explain why your bakery may not necessarily be better off after the technical advancement in farm technology.

5) Suppose income elasticity of a mid-sized family car in Australia is 1.4. What will be the effect of the mining boom on the demand for cars?

6) In 2010, the minimum wage in Australia was A$ 15. What may have been the likely impact of this minimum wage policy in the Australian mining industry?