By learning in the classroom and exploring my new surroundings, I got the best of both worlds. #WorkHardPlayHard
At the end of my internship in Israel this past summer, I realized that I wanted to explore the world. Being in a new setting halfway across the world, where I was exposed to a culture filled with rich history, unusual architecture, exotic food, and exciting people whet my appetite for discovering what else is out there. I had caught the travel bug! My curiosity piqued, I chose to travel to a place as far away as the globe permits. My finger landed on Australia; that I would avoid New York’s notoriously frigid weather by being in the Southern Hemisphere during the summer was an unexpected bonus. For the past month, I took a course at Deakin University entitled Australia Today. Outside of the classroom, I had fun by exploring my new surroundings and immersing myself in a country that quickly became my home. In the process, I made countless economic observations about the workings of Australia.
At first it was difficult to think of the brightly colored local currency as anything more than Monopoly money.
One of the very first things I noticed was the currency. While it is also called the dollar, the Australian dollar is not to be confused with the American dollar. The main difference between the two, besides for the appearance, is that the latter is worth more. As of late, the American dollar has proven to be much stronger than other currencies.
Because of the turmoil in Russia, and the threat of additional sanctions that will hamper the local economy, the value of the ruble has plummeted. Investors are worried, and rightfully so: Standard & Poor downgraded Russia’s rating to junk status.
There are various determinants of the strength of a currency. Sometimes it is psychological, as people seek monetary security and want a stable currency. Or, the strength could be based on fiscal policy: if a government sets a higher interest rate, there will be more demand for the local currency, and consequently the value will increase.
There are four parts that comprise GDP, which reflects the health of the economy: consumption, investment, government spending and net exports (exports minus imports). When imports increase, GDP decreases. People may be happy that things are cheaper, but the GDP reflects, somewhat inaccurately, a weakened economy.
Before I left for Australia, the value of the Australian dollar slid. This was excellent news for me, the tourist, because I had increased purchasing power. From my perspective, everything was cheaper. On a macro level, this would result in increased exports from Australia to America. At the same time, it would also mean fewer imports from America to Australia, since it is more expensive to buy with the weakened currency.
And yet, during my time in Australia, I still found everything to be significantly more expensive. Things that cost a dollar in America were at least double the price. At first, I thought that this must be because of the fact that Australia had to import everything from countries far away, resulting in sky-high shipping costs.
Easy to overlook, shipping plays a crucial role in consumption. Last year, there was tremendous uproar when orders did not arrive before Christmas, as was guaranteed.
Indeed, the role of shipping plays a significant role in calculating manufacturers’ costs. In accounting, there are two types that are considered: FOB (free on board) shipping and FOB destination. The former means that the sale officially occurs once the goods have been shipped, and that the seller is not responsible for anything that happens in transit. The latter means that the sale officially occurs only when the goods arrive at the final destination, and that the seller is responsible for damage that takes place up until that point. No matter which version Australians choose, the onus of the high cost would ultimately be transferred onto the buyer.
Australia far surpasses even the next closest country in its minimum wage. It is shocking and disheartening to see the disparity between Australia’s and Sierra Leone’s.
The higher prices are also a reflection of the impressive purchasing power that Australians wield, which can be attributed to their high minimum wage. While the minimum wage in America is $7.25 an hour, it is a staggering $16.87 in Australia. When I first heard this figure, my jaw actually dropped. My shock was reciprocated when I disclosed our minimum wage to the Australians; they equated this sum with legal slave labor.
The difference that arises between the number of laborers demanded and those supplied is the number of unemployed workers. A minimum wage is binding if it is higher than the wage rate, and then firms will hire fewer employees; if it is lower, there is no impact.
Though the prospect of such a high wage is tempting, I believe that this amount is too high. Forcing business owners to pay so much will cause them to hire fewer employers or lay off current ones. Indeed, the concept of a minimum wage, which is an example of a price floor, is one that economists almost unanimously agree on: 79% believe that, rather than improving social welfare, the minimum wage increases unemployment.
Australians that I spoke to supported the minimum wage. Their high pay, they argued, counterbalanced the price of the expensive goods. The ones who felt the sting of the sticker shock were the tourists who only experienced the negative side of this give-and-take scenario.
One cannot go to Australia and not buy something kangaroo related!
My spending on food was a pittance compared to what I spent on souvenirs and tourist attractions. My mindset for this trip was that I would never have the opportunity to return to Australia; I had to usurp every moment. Almost every place I visited displayed blatant price discrimination, when the seller differentiates prices of similar goods based on different areas or audiences. Gift shop owners in particular exploited the uninformed tourists who had a high willingness to pay. Interestingly, since everyone’s goods were the same, the merchants were all essentially price takers- sellers who were forced to charge the same price. Still, there was opportunity to profit in this scenario had they colluded, and set a fixed, inflated price.
I exited the airport in Cairns to have this spectacular view greet me.
When in Cairns, though, I noticed a discrepancy in pricing between two stores selling the exact same item that my friend wanted to buy. (Side note: this was also the perfect opportunity for arbitrage if I wanted to make an easy profit.) I helped my friend not only by finding a cheaper price, but also by then bargaining with the store owner. Everyone loves the frugal friend!
I like to say that I walked the Blue Carpet at the Australian Open. But it did not come cheap.
My last major adventure was going to the Australian Open. A ground pass cost $44, a figure that I determined, through quick cost-benefit analysis, to be extremely worthwhile. That is, until I discovered that it used to be around $25. The increased price is also likely due to price discrimination: tennis aficionados and tourists alike have a high willingness to pay at this exciting annual event. Thus, dramatically boosting the cost will have little impact on the number of attendees. Consequently, profits will soar.
There was a loophole in the pricing system that I did not discover until it was too late. A friend of mine exploited this opportunity by gathering three others on line, and together purchased a family pass. With no distinction between tickets bought individually or in a group, the exact same ticket now cost a mere $24. With the money saved, you could buy a small Australian Open souvenir!
The very first picture I took, when I arrived in Sydney.
I had an unforgettable experience in Australia. What was once the Land Down Under is now my home away from home. From a business perspective, my exposure to the Australian economy, which is intimately linked to the Asian markets, is sure to be a boon as I enter the professional world. I also felt accomplished and efficient, having taken both a winter course and a vacation simultaneously. And just like that, my winter break is over. I am ready to jump into the spring semester!
