Economic Environment and Climate Change

Question :

This assessment will cover the following questions:

  • What are the components of GDP and how it would affect the inflation and unemployment rate.
  • Explain the types of inflation and unemployment and how it would be affected by the change in GDP.
  • How change in demand and supply factor will be impact on prices, production and welfare.
Answer :


Economic environment is the combination of micro and macro factors which impacts a nation (Cook, 2017). The main of this briefing note is to explain the consequences of the climate change on Australia’s production and consumption of certain goods. For this two products are selected which are analysed by ascertaining their impact on micro and macro environment.


Product 1: Service of fisheries and aquaculture

Microeconomic Impact

Due to the climate change in Australia, it is said that an average of 3-4% temperature has been raised. Due to this, life below the sea level is impacted. Approximately 55% of the primary habitat has been lost due to increase temperature. This issue has raised in demand change for the services of fisheries and aquaculture. The demand for this service has been lead towards reduction. Due to this decreased demand of fisheries service, the prices which were paid for this service is also reduced. Increasing demand has resulted to loss of aqua habitat due to which production of fishes and fisheries has reduced. Regardless of these impacts, the welfare of the fisheries is increasing as the fishes and other aquaculture beings requires high welfare so that they can survive in such high temperature.

From the above diagram it is evident that even if the price of the service is constant but due to the low available quantity for this service, the demand as well as supply for this service of fisheries and aquaculture has decreased.

Macroeconomic Impact

This low demand of fisheries service will highly impact the GDP of Australia as the overall gross domestic product value will be reduced. The component of GDP which will be affected the most is change in inventories as the products of aquaculture will reduce in number with a considerable value.

Both inflation and Unemployment will be effected by this decrease in demand in fisheries and aquaculture service (Azevedo and, 2016). The type of inflation which will be affected by this low demand is cost push inflation. As the cost of the fisheries and aquaculture will eventually decrease due to low demand. Apart from this, the type of unemployment which will be influenced the most is geographical as the areas which are based upon the business of fisheries and aquaculture will only be impacted.

Product 2: Wheat

Microeconomic Impact

The climate of Australia is changing as the temperature of this region has increased to an average of 3-4 degree Celsius. Due to this temperature increase, the production of wheat is approximately reduced to by 32% which is impacted its supply (Hegetschweiler and, 2017). As there is low production of wheat, there is less final wheat to be supplied.

As the supply of the wheat will reduce but the demand will be constant, then the selling price of wheat will increase rapidly. Despite of increased price, productivity and welfare of wheat will be decreased.

Macroeconomic Impact

As the supply of Wheat will reduce due to decreasing production, the price and demand of this product will be increased. This increased price will have temporary positive impact on the GDP as the contribution from the revenue generated by sale of wheat will be high. But in the long run, GDP will be negatively impacted as the high prices of basic products like wheat negative impacts gross domestic product of a nation like Australia.

There are widely five components of GDP of Australia which are consumption, fixed investment, change in inventories, government purchases and net exports (GDP components, 2019). The component which will be most affected by the low supply of wheat is consumption as the private consumption of wheat will be reduced due to its high prices.

Inflation has the basic principle of increment when the prices of the products increases. In the case where the supply of wheat is increasing implies a direct impact on price enhancement of wheat which will lead to high inflation rate. This will also draw a minor part towards the cause of unemployment. This will highly impact on demand pull inflation and demand deficient unemployment.

Related Article:- Financial Analysis of Management and Enterprise


From the above briefing note, it has been concluded that climate change is the most effective factor which does not only impact the environment of a region but also impacts the economic stability of a region. It is important to control the factors of global warming which are the cause of climate change.

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