Economics Assessment: Microeconomics and Macroeconomics

Running head: ECONOMICS ASSESMENT 1
MICROECONOMICS AND MACROECONOMICS
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ECONOMICS ASSESSMENT 2
Part A: microeconomics
Question 1
The Australia banking industry is among one of the biggest in the world with some banks
having branches overseas. Australian banks operate on an oligopoly market structure. The
industry has four major banks that control 85% of the market share. These banks include
common wealth bank of Australia, Australia and New Zealand Banking Group, national
Australia Bank and Westpac Banking Cooperation (The Structure of the Australian Financial
System, 2006). There are other smaller banking institutions in the country but they do not have
so much influence on the market.
The global financial crisis had a negative effect on the competition in the banking sector.
Competition prior the global financial crisis was far more than after. Even though there was still
the dominance of the major banks, the smaller banks also offered competition. After the financial
crisis, most of these smaller institutions exited the market and those that remained had a slow
growth. Most of these institutions especially the non-banking ones mostly depended on
securitization markets for funding. The securitization markets closed after the financial crisis.
Question 2
If the four biggest banks in Australia decide to collude to change a high price on banking
products, they will act like a monopoly. The banks can hold down the industry output, charge a
higher price on products and divide the profits among themselves. The banks will produce a
monopoly output and charge a corresponding price. Their marginal revenue (MR) will be equal

ECONOMICS ASSESSMENT 3
to their marginal cost (MC) (Collusion or Competition?). In this situation, customers will have to
bare the high cost of products while the banks enjoy high profits.
The graph below represents the effect of the bank’s collision.
When the banks collude, their MR=MC just like in a monopoly. . Just as in a monopoly, these
banks would be anonymously dictating the prices of their products thus fully controlling the
market. This means that consumers will have to spend more to acquire services at a high price
which otherwise would have been acquired at lower prices.
Question 3
After the financial crisis, most of the small financial institutions either withdrew from the
market or lowered down their activities. This meant that the diversity in the market had gone