Applied Analysis of the Carbon Price Mechanism in Australia Essay

Applied Analysis of the Carbon Price Mechanism in Australia - Essay Example The new Carbon Price Mechanism to be announced by Australian government will impact the social well-being of the consumers and will also affect the household budgets. However, the compensations proposed to be made by the government will reduce the adverse effects that these higher prices would have, otherwise, on the energy consumption patterns of the consumers. These effects may be well described with the help of Consumer choice theory. A basic assumption of Consumer choice theory is that the consumer wishes to maximize the utility. In other words, their decision making is rational. However, it is also assumed that the income available to a consumer to be spent is also limited. Subject to such available budget, the consumer seeks to maximize the total utility gained from consumption of goods and services. 1. EFFECT OF RISING PRICES ON ECONOMIC WELL-BEING OF CONSUMERS: As explained earlier, consumers have limited incomes. With these incomes, they wish to maximize their satisfaction. This satisfaction is gained through consuming goods and services. However, with limited incomes, there is a limitation on the consumption of goods. Where the consumer has equal preference for two goods, he is said to be indifferent between these two goods. The income of an individual consumer is shown in the diagram below. It is assumed that this income is divided by the consumer for the consumption of two products, one of which is the energy source shown along the X-axis. The economic well-being of the consumer is in that he uses both the goods to his entire satisfaction with his limited income. To explain the effect of rising prices on economic well-being of households, assume that the consumer has a limited income which is represented by Budget line BC1. This budget line in the graph shows that the consumer can divide his income between the energy source and other goods by such income. The indifference curve IC1 shows different consumption options available to the consumer for co nsumption generate equal utility to the consumer. But all the points situated on IC1 are located above the budget line except Point A. so, the consumer will get maximum satisfaction by utilizing X1 units of energy source and Y1 units of good Y. With corresponding increase in the price of energy source, the units which may be consumed by the consumer become less. So, the budget line is rotated inwards. New budget line obtained is BC2. The new indifference curve obtained after rising the price of energy source is IC2 and the new equilibrium point which generates maximum satisfaction for the consumers is B. at this point, the consumer will get maximum satisfaction by consuming X2 units of energy source and Y2 units of product Y. It is to be noted that due to rise of price of energy source, the consumption of both the products has been reduced. Thus, this will adversely affect the well-being of the consumer as the consumer will have to sacrifice the units of both the goods in order to a ttain equilibrium for the consumption of both the units. EFFECT OF RISING PRICES ON ENERGY CONSUMPTION PATTERNS OF HOUSEHOLDS: The rising prices will also affect the energy consumption patterns of the households. It will specially affect the consumption patterns if the consumers have an alternative source of energy. In case of rising prices, the consumer consumption pattern will be tilted towards that alternative source of energy. The budget line is BC1 before the price change and the IC will show the

International Banking Law Essay Example | Topics and Well Written Essays - 3500 words

International Banking Law - Essay Example [1] This essay shall look into the fictitious situation where an online company selling books is loaning a sum of money from a bank to expand and diversify their online operations. The essay attempts to advise the bank in dealing with the loan situation. The situation has therefore been viewed from the bank's perspective. The essay has been dealt with in two parts. Before any legal advice is given to Spring Bank regarding the type of loan and form of security, it is important to break down the situation. To do this a few concepts have to be cleared. Since giving an overdraft to Winter Ltd. is an option open to Spring Bank, one must consider what an overdraft is and when is an overdraft usually given by a bank. An overdraft is the amount of money that can be overdrawn from a current account, subject to a limit already agreed with the bank. There are certain facilities of an overdraft. With an overdraft, you pay money for the amount of money you use and only for the period you use. For example, an overdraft can be drawn to pay the supplier and within a week the money can be again deposited into the account, after the money comes from the buyers. Overdraft is thus an efficient form of borrowing, usually made to tide over short-term cash-flow fluctuations. Since interest is calculated daily on the fluctuating outstanding balance and is normally ch arged at the end of each month, there is flexibility. [2] [3] [4] However, in the case of Winter Ltd, the company is not looking for money to make some business payment, which cannot be accommodated from the available cash balance in their current account. It is looking for money for business diversification, which requires a permanent source of financing rather than short-term financing. So, Spring Bank should not agree to an overdraft facility but should give a term loan, as advised by their risk committee. Now, that it has been clearly established that Spring Bank will give Winter Ltd. a loan to diversify its business, one has to look at the loan options that the bank can offer the company. The advantages of giving a loan is that both the business and the bank will know the exact terms of repayment and the amount of interest to be paid and when. The Loan Options that the Bank will Consider Let's now consider the various loan options available to the bank. Banks are conservative lending bodies. A bank loan will be available usually against a security. This brings us to a broad categorisation of loans into 'secured' and 'unsecured.' A 'secured loan' is a promise to pay a debt, where the promise is 'secured' by granting the creditor an interest in specific property or collateral of the debtor. In the case where a debtor does not pay the loan in time, the creditor has the right to seize the property that has been kept as collateral, and recoup the loan. Though an 'unsecured loan' also promises to pay the debt, the promise does not include giving the creditor any interest in a particular property. In case of an unsecured loan the lender relies on the fact that the borrower is credit worthy and can be trusted. Particularly for small businesses (though it has not been specifically mentioned that Winter Ltd. is a small business, one can assume such as it is a company