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Assignment

BEO6600 Business Economics


T1 2018

This assignment is to be completed in pairs or groups of three and submitted


via VU collaborate.

Assignment Weight: 30%


(Maximum 3000 words)

Structure of Assignment

1. Cover Sheet (next page) properly completed.


2. Assessment Declaration (signed by all group members)
3. Report in Word format (pdf format will not be accepted)

Assignments will not be accepted or marked if it is not accompanied


by a signed assessment declaration.

Due: Week 12. All assignments must be submitted via Turnitin.

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Cover Sheet

Group:

Group Members

VU ID First Name Surname Mobile Tutorial Time

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PART 1: BITCOIN
Context
Bitcoin was created in 2009 as a crytocurrency (virtual currency) that is not controlled nor
backed by any government or central bank in the world. It is developed through a
technology-based mathematic algorithm that also restricts its supply. The supply of Bitcoins
has been targetted to reach its optimum level of 2.1 million Bitcoins by 2140, at which no
further Bitcoin will be produced by the algorithm. Bitcoin was initially used by individuals
and small businesses for low cost transactions (such as purchase of t-shirts and books) but
big corporations (such as Dell Computers, Virgin Airlines, Expedia, Pay Pal, and Google) are
now accepting Bitcoin as a medium of exchange.

Transactions using Bitcoin as the medium of exchange are recorded in the blockchain, which
is like an accounting ledger. This ledger records amounts, times, and account addresses of
each transaction and this information is accessible by the public. However, personal
information of individuals or the nature/type of transactions in exchange for the Bitcoins are
not recorded. This anonymity in Bitcoin usage makes this crytocurrency a potential tool for
criminal and money laundering activities (Wilson & Yelowitz 2015).

Bitcoin’s market value is determined by market demand and supply. When Bitcoin was first
developed in January 2009, its value was $0.00 for several months. Its rise in value was
meteoric, surpassing the US dollar in value in 2011 and its value was increased by several
times its earlier value within a short span of time (for example, increased from US$100 per
Bitcoin in March 2013 to US$1,000 per Bitcoin in November 2013) and gaining rapid
momentum in subsequent years (from US$3,000 in November 2017 to US$19,000 in
December 2017) before losing in value and plunging to below US$13,000 in late December
2017 (Kelly and Saoshiro 2017). Although Bitcoin is globally traded, there has been no global
regulatory framework for it (Datamonitor 2012).

The number and size of transactions using Bitcoin or other crytocurrencies is currently small
and does not constitute an immediate risk or threat to the global financial and monetary
stability (Baur, Hong and Lee 2015; Peters 2017; Rajadhyaksha 2018). However, central
banks in developed countries (such as Australia, the US, European Union, Japan, Germany,
the UK, France, Canada, South Korea and Russia) and developing countries (including
China and India) are monitoring these crytocurrencies that were created outside of their
control because these private money alternatives may one day grow to a level that
undermines the effectiveness of monetary policies in their economies if left unmonitored
(Lam 2017).

Questions
1.1 Using a diagram, explain and illustrate the demand curve, supply curve, and their
elasticities for Bitcoin.
1.2 Using a diagram, explain and illustrate what caused the increase in Bitcoin’s market
price.

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1.3 If all cryptocurrencies (including Bitcoin) become a common medium of exchange for a
significant proportion of economic activities and transactions and they continued to be
outside of the control of governments and central banks, undertake an economic analysis of
the impact of these cryptocurrencies on Australia’s Gross Domestic Product (GDP) and
implementation of monetary policies.

References
Baur, D. G., Hong, K. and Lee, A.D. 2015. “Bitcoin: Currency or Asset?”
https://mbs.edu/getattachment/fircg/FIRCG-2016/Papers/8-Adrian-2c-KiHoonBitcoin-
Baur-et-al-2015-P.pdf. Accessed 6 February 2018.
Datamonitor. 2012. “Virtual currencies are on the radar of central banks, but regulations
remain a long way off.” MarketWatch: Financial Services, 12(12): 23.
Economics Letters 22 (13), 1030–36.
Kelly, J. and Saoshiro, S. 2017. Bitcoin plunges below $US13,000, heads for worst week since
2013, Canberra Times, December 23, viewed 6 February 2018,
<http://www.canberratimes.com.au/business/banking-and-finance/bitcoin-plunges-
below-us13-000-heads-for-worst-week-since-2013-20171222-p4yy0c.html>
Lam, E. 2017. What the world’s central banks are saying about cryptocurrencies, The Age,
November 27, viewed 6 February 2018 <http://www.theage.com.au/business/markets/bitcoin-
should-be-outlawed-says-nobel-winner-joseph-stiglitz-as-cryptocurrency-hits-us11000-20171129-
gzvjx4.html>
Peters, B. 2017. Here’s what Fed Chief Janet Yellen thinks about Bitcoin. Business Daily, 13
December 2017.
Rajadhyaksha, N. 2018. Monetary policy’s crytocurrency challenge, viewed 6 February 2018
<http://www.livemint.com/Opinion/49fqM520KSoQR2OvkfnVNI/Monetary-policys-
cryptocurrency-challenge.html>
Wilson, M., and Yelowitz, A. 2015. Characteristics of Bitcoin Users: An Analysis of Google
Search Data, Applied Economics Letters, 22 (13): 1030–36.

PART 2: AUSTRALIA INITIATES WORLD TRADE


ORGANISATION (WTO) DISPUTE ACTION AGAINST
CANADA
Context
On 17th January 2018, the Australian government initiated a formal WTO dispute settlement
action against Canada’s discriminatory and protectionist behaviour that affects the sale of
Australian wine in Canada (Ciono 2018). Australia believes that Canada’s behaviour
contravenes the latter’s WTO obligations through its unfair practices towards Australian and
other foreign wine producers. Canada is Australia’s fourth largest export market for wine at
a sizeable market size of A$185 million. The US has also complained about Canada’s

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behaviour towards wine imports and is currently negotiating a settlement under NAFTA
(North America Free Trade Agreement) for preferential trade access.

Key issues in contention that affect the sale of Australian wine in Canada were identified by
The Winemakers’ Federation of Australia (2018) as follows:

 Canada’s liquor board mark-ups and other associated fees, levies and/or taxes are
applied differently to the advantage of local Canadian wines.
 Canada are imposing conditions on local retail outlets and different types of local outlets
that mean that it has become impractical for these outlets to sell foreign wine.
 Providing supplier rebates that favoured Canadian wine producers.
 Preferential treatments given to Canadian wine regarding shelf space, placement and
promotion costs.
 Canada’s Liquor Control boards subsidising transportation and handling fees of
Canadian wine producers for products that may not have even gone through these
boards’ retail channel.
 Canada’s Liquor Control boards provide free laboratory and quality assurance services
to local wines but not foreign wines.

Australia believes Canada’s domestic wine regulations provide unfair advantage to their
local vineyards and discriminate directly or indirectly against imported wine (Ciono 2018;
The Winemakers’ Federation of Australia 2018). These unfair practices have resulted in
falling Australian sales export of bottled wine to Canada.

Questions
Conduct an economic analysis of the effects of the following issues identified by The
Winemakers’ Federation of Australia (2018):

2.1 The effects of a tariff on Australia wine imports in Canada. Using a diagram, explain and
illustrate the impact on consumer surplus, producer surplus and deadweight loss.

2.2 The effects of a subsidy granted by Canada’s Liquor Control boards to Canadian wine
producers. Using a diagram, explain and illustrate the impact on consumer surplus,
producer surplus and deadweight loss.

2.3 Identify and briefly explain the trade pact(s) that Australia could use to negotiate for free
trade access to Canada’s wine market.

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PART 3: 7-ELEVEN & MINIMUM WAGE RATE
Context

7-Eleven Stores Pty Ltd Australia is a private company owned by the Withers and Barlow
family. The company has a license to operate and franchise 7-Eleven stores (which are
convenient stores generally open for 24-hour business operation) in Australia from the US
based 7-Eleven Inc. The stores generated sales of approximately $3.6 billion with 55,000
stores in 16 countries in 2015.

In 2015, a joint investigation by Fairfax Media and Four Corners program production team
revealed there were workers in 7-Eleven stores who were paid half the $24.50 an hour award
rate ($24.50 is the minimum wage rate stipulated by law). The Court issued penalties to 7-
Eleven operators who breached the Fair Work Act 2009 (Cth) and also made it clear in its
ruling that businesses must comply with the minimum wage rate.

Questions
3.1 Explain the rationale behind the minimum wage rate based on the theory of efficiency
wages.

3.2 Identify and explain the disadvantages and problems associated with a binding
minimum wage for employers in the labour market and the economy.

3.3 What strategic recommendations (based on economic principles/concepts/theories


learned in BEO6600) would your group offer to new business setups in Australia in regard
to dealing with Australian minimum wage and ensuring business viability at the firm level?

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Important notes for answering questions in Part 1, 2 and 3:
In answering all the questions in Part 1, 2 and 3, your group is required to:

- use the economic principles and models introduced in this unit in your analysis,
explanation and discussion.
- use diagrams where appropriate to help illustrate and support your arguments.
- clearly label all diagrams.
- conduct research to understand the contexts of this assignment.
- cite the external sources (such as academic journals articles, books, book chapters) of
your arguments as appropriate. VU deals with plagiarism according to the Academic
Integrity and Preventing Plagiarism Policy.

Please note that the written presentation should address the assignment questions,
showing understanding and application of the key concepts and theories in the learning
program. Be concise and to the point. Marks will not be awarded for assignment that
focuses heavily on background and/or event description, without any economic analysis
undertaken by the group.

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Group Activity Log

You are required to submit a Group Activity Log using the following
template to determine your contribution in the assignment.

Name/Names of
Date/Time Activity Description Reflective learning notes members who
completed activity

We hereby declare that we have completed the above activities and each
member of our group has equally contributed to the group task.

Student Names and signatures:

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Please read the following, carefully:

 The final submission should show your understanding and application of the relevant
concepts.

 This assignment is to be completed in pairs (2 students per group) or groups of three.

 Since the assignment forms a part of the final mark for the unit, no assistance
will be provided by the academic staff in relation to answers to the questions.
However, if you need any clarifications in regard to understanding the
questions, you may contact your lecturer/tutor.

 Your answers must be typed. Graphs may be drawn by hand.

 Use Times New Roman, size 12, for the text. Number the pages, if applicable.

 Include a cover page, with:

 Unit code and title


 Name of the assignment
 Tutorial group
 Tutor’s name
 Both student’s names and ID numbers
 Due date

 Attach the completed Assessment Declaration form available in the


Assessment Information section of the unit website.

 Reference List, if applicable. Please use the Harvard Referencing Style.

 Your assignment must not record a Turnitin similarity rate of more than 20%. If
the similarity rate exceeded 20%, your group must revise it to below 20%
before the submission deadline. Assignment exceeding 20% in similarity rate
will not be marked.

Marking Reference

The following table shows the marking rubric for this assignment:

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