Demand Determinants For University Education In Australia And Elasticity Of Demand For Alcohol, Cigarettes, And Cars

Demand Determinants for University Education in Australia

1. Some few decades ago, people perceived Australia in terms of open spaces for kangaroos, Outback bush and koalas only to realize later that Australia has much to offer than that (Levatino, 2017). International students are now flooding in Australian universities because of what has been considered as an excellent and valuable education system among other factors as outlined below

Current statistics have indicated that employers over the world value and recognize professionals from Australian schools (Min & Falvey, 2018). This is due to the impressive international picture which has been set by employees who have gone through the Australian education system. Students are therefore striving to get a share of the reputation and secure their future in the job markets.

The wide variety of courses and degrees offered in major institutions of Australia make it easy for international students to secure specializations which are right and favorable for them (Min & Falvey, 2018). Apart from degree program selection choices availed to international students, they also have choices of whether to join the university, vocational programs or English training. If necessary, students are also permitted to shift from one qualification level to another and from one institution to another.   

The quality of research in Australian institutions has been ranked among the best in the world and that has been an appealing aspect for international students who have their line of the profession under technology and research. Australia has also been ranked at the forefront when it comes to current technology and innovation (Min & Falvey, 2018). For that matter, international students strive to acquire their higher education in Australia so that they can take advantage of the country’s exciting technology and the available research resources.

The standards of living in Australia are among the highest in the world. Also, the living expenses, as well as the tuition costs in the major institutions of the country, are considerably lower when compared to the other two giants, United States, and the United Kingdom, who have the same education standards (Levatino, 2017). In addition to the low cost of acquiring education in this country, International students are allowed to work part-time hence enabling them to offset their living costs.

2. Among the many building blocks for economic theory is the fact that an increase or a decrease in the price of commodities causes a decline or an upsurge in the demand for such commodities respectively (Kumar, 2017). Price elasticity of demand, therefore, denotes the extent to which a decline or an upsurge in the commodity prices translates into a rise or a fall in the demand for the respective commodities. Consider the three products below: alcohol, cigarettes, and cars in the explanation of price elasticity of demand.

Statistics have indicated that alcohol consumption has been rising globally for the last decade, with an average of 30% of the world population consuming alcohol and out of which 4-14% were daily consumers (Kumar, 2017). Following the increasing evidence that alcohol has harmful effects on the consumers, however, policymakers have resorted to regulate the prices of alcohol through heavy taxes. The approach has seen alcohol prices going up to the minimum price of $1.5 USD (Amlung, MacKillop, Monti & Miranda, 2017). The demand for alcohol is therefore expected to start reducing because of the following three factors: first, because of the high prices due the imposed taxes, potential consumers who would otherwise get into the drinking habit will be discouraged by the high prices and shy away from getting into the habit; secondly, the existing consumers falling under low-class category will be forced by the unaffordability factor to quit alcohol and thirdly, the category of consumers who preferred alcohol because it was the cheap form of luxury will divert to other affordable luxury approaches. Ultimately, the demand for alcohol will decrease as a result of the three categories lowering their pace of consumption (Amlung, MacKillop, Monti & Miranda, 2018).

Elasticity of Demand for Alcohol, Cigarettes, and Cars

Cigarettes just like their counterpart alcohol have the same behavior when it comes to price elasticity of demand. Initially, the consumption of cigarettes was high because it was cheap and affordable to its consumers (Tucker, Laugesen & Grace, 2017). This has been the case until the World Health Organization (WHO) has released statistics which show the health effects of cigarette smoking to the consumers and governments embarked on the approaches which could discourage its consumption. Among the approaches, the imposition of heavy taxes on the product has been adopted as the main approach which has seen the prices for this commodity escalate by more than 30%.  The demand for cigarettes is therefore expected to start reducing because of the following three factors: first, because of the high prices due the imposed taxes, potential consumers who would otherwise get into the smoking habit will be discouraged by the high prices and shy away from getting into the habit (Jawad, Lee, Glantz & Millett, 2018); secondly, the existing consumers falling under low-class category will be forced by the unaffordability factor to quit cigarette smoking and thirdly, the category of consumers who preferred cigarette because it was the cheap form of luxury will divert to other affordable luxury commodities. Ultimately, the demand for a cigarette will decrease as a result of the three reasons which will lower their pace of consumption (Stein, Koffarnus, O’Connor, Hatsukami & Bickel, 2017).

Initially, the number of car manufacturers where very few and that saw them dominate the car industry and setting the prices for cars very high to an extent that those who could afford personal cars were very few (Gostkowski, 2018). However, the increasing number of the current vehicle manufacturers has appeared as a game changer in the industry because it has brought stiff competition and hence prices for cars going down. People have also changed the traditional perspective of owning cars that saw it as a luxury to start seeing it as a basic need. It is therefore expected that the demand for cars will continue to increase as many people from different economic classes can afford following the low prices (Gostkowski, 2018).

3. Statistics have shown that alcohol demand is adversely affected by its prices. Therefore, the decision of Northern Territory to set minimum price for all types of alcohol products as high as $1.30 will see its demand decline because of various reasons (Amlung et al, 2017): First, because of the high prices due the imposed taxes, potential consumers who would otherwise get into the drinking habit will be discouraged by the high prices and shy away from getting into the habit; secondly, the existing consumers falling under low-class category will be forced by the unaffordability factor to quit alcohol and thirdly, the category of consumers who preferred alcohol because it was the cheap form of luxury will divert to other affordable luxury approaches. Ultimately, the demand for alcohol will decrease as a result of the three categories lowering their pace of consumption.

Price Elasticity of Demand for Alcohol

4. Monopoly model

Just like in any market structure, profit-maximization behavior in monopoly is based on marginal decision rule that states that additional units of a commodity should be manufactured provided that the marginal revenues of the additional units surpass the marginal costs. The maximizing solution favors the situation where marginal revenues equal marginal costs. As always, the organization efforts to maximize its profits and costs are gauged in an economic sense of opportunity cost (Jim & Scaramozzino, 2017). The monopoly model above shows the demand curve and its associated marginal revenue curve as faced by the monopoly firms. The marginal cost curve slopes down over the range of output which the firms experience as increasing marginal returns but rises when the firms began to experience diminishing marginal returns. Considering the fact that these kinds of firms operate in a market structure with no stiff competition, any efforts to maximize production are highly neglected and end up being high. To cope with those high production costs, the firms tend to direct them into the consumer side hence translating to high prices for their goods and services (Gilbert, 2018).

In the case study presented in this paper, the same applies to it; for instance, the air operators may are likely to be reluctant when it comes to directing the pilots on the availability of landing spaces in different airports which forces the planes to take too long on the air before landing. This will automatically translate to the high operational costs of their planes and which will be directly transferred to the consumer side hence being very expensive.

References

Amlung, M., MacKillop, J., Monti, P. M., & Miranda Jr, R. (2017). Elevated Behavioral Economic Demand for Alcohol in a Community Sample of Heavy Drinking Smokers. Journal of studies on alcohol and drugs, 78(4), 623-628.

Amlung, M., MacKillop, J., Monti, P. M., & Miranda Jr, R. (2018). Elevated Behavioral Economic Demand for Alcohol in a Community Sample of Heavy Drinking Smokers. Journal of studies on alcohol and drugs, 78(4), 623-628.

Gilbert, S. (2018). Pure Monopoly Model. In Multi-Market Antitrust Economics (pp. 15-33). Palgrave Macmillan, Cham.

Gostkowski, M. (2018). Elasticity of Consumer Demand: Estimation Using a Quadratic Almost Ideal Demand System. Econometrics, 22(1), 68-78.

Jim, H. S., & Scaramozzino, P. (2017). A bilateral Monopoly Model of Profit Sharing along the Global Supply Chains. In Forum For Research in Empirical International Trade Working Paper Series (No. 1252).

Jawad, M., Lee, J. T., Glantz, S., & Millett, C. (2018). Price elasticity of demand of non-cigarette tobacco products: a systematic review and meta-analysis. Tobacco control, 27(6), 689- 695.

Kumar, S. (2017). Price elasticity of alcohol demand in India. Alcohol and alcoholism, 52(3), 390-395.

Levatino, A. (2017). Transnational higher education and international student mobility: determinants and linkage. Higher Education, 73(5), 637-653.

Min, B. S., & Falvey, R. (2018). International student flows for university education and the bilateral market integration of Australia. Higher Education, 75(5), 871-889.

Stein, J. S., Koffarnus, M. N., O’Connor, R. J., Hatsukami, D. K., & Bickel, W. K. (2017). Effects of filter ventilation on behavioral economic demand for cigarettes: A preliminary investigation. Nicotine & Tobacco Research.

Tucker, M. R., Laugesen, M., & Grace, R. C. (2017). Estimating demand and cross-price elasticity for Very Low Nicotine Content (VLNC) cigarettes using a simulated demand task. Nicotine and Tobacco Research, 20(7), 843-850.

Yakovlev, E. (2018). Demand for alcohol consumption in Russia and its implication for mortality. American Economic Journal: Applied Economics, 10(1), 106-49.