French Economy Analysis & Policy

This assignment analyzes the current state of the French economy and explores potential policy solutions to address its challenges. It delves into topics such as government budget deficits, income inequality, unemployment, and the role of education in boosting productivity. Students are asked to evaluate different policy options proposed by President Macron and their potential impact on various sectors of the economy.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author Note

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Table of Contents
Answer 1:.........................................................................................................................................2
Answer 2:.........................................................................................................................................4
Answer 3:.........................................................................................................................................5
Answer 4:.........................................................................................................................................7
Answer 5:.........................................................................................................................................9
Answer 6:.........................................................................................................................................9
References......................................................................................................................................11

C0
C1
Q0 Q1
Q
AC
LRAC
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Answer 1:
In terms of the conceptual framework of economics, the term “Economies of Scale”
refers to the cost advantage, which the production firms enjoy with increase in their scale of
operations. in general, there are two types of costs incurred by a firm in its production process,
the fixed cost and the variable cost of production. With increase in the production of goods and
services, the per unit input costs of the production goes decreasing and the average fixed cost
also falls per unit, which over time leads the firms to enjoy experience the Economies of Scale
(Polkinghorn 2016). This can be shown with the help of the following figure:
Figure 1: Economies of Scale due to falling Average Cost of Production
(Source: As created by the author)

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From the above figure, it can be observed that as the production of the firm increases
from Q0 to Q1, the average cost of production of the same also decreases from C0 to C1. Thus,
with the increase in the production and with the consequent decrease in the average cost of
production, the firm starts enjoying Economies of Scale.
There exists different types of market in economy, which differ in terms of the number of
buyers and sellers, type of goods and services, distribution of market power; entry and exit ease
in the markets and others. Of this, the monopoly market is one with one seller and many buyers,
which gives the seller the whole of the market power. The economies of scale also operate the
best in the monopoly marker. A producer in general becomes a monopolist owing to the
advantages it enjoys over its competitors in terms of cost and amount of production. In a
naturally monopolistic firm, the presence of increasing returns to scale is related to its total
market share and control over inputs for production (Dunne et al. 2013).

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Figure 2: Natural Monopoly and Economies of Scale
(Source: As created by the author)
Thus, it can be asserted that economies of scale best operate in monopolistic markets.
Answer 2:
One of the largest airline industries in the global framework is present in Australia, one of
the globally dominating economies. As per the assertions of the given article, it can be seen that
before 2003, the Australian airline industry were primarily dominated by four big players,
namely the Qantas, Virgin Blue, Ansett and the Impulse Airlines. However, post 2003, the major

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share of the market came in the hands of two of these airlines, namely the Qantas and the Virgin
Blue. This in turn indicates that the airline market of the country, in the contemporary period,
represents the structure of a duopoly market (Aph.gov.au, 2018).
Thus, having four big players in the supply side before 2003, and two main players after
2003, the overall market structure of the airline industry of the country is that of an oligopoly
market (duopoly market being a variant of the oligopoly market) (Okuguchi and Szidarovszky
2012). Few sellers and many buyers characterize an oligopoly market, which is found to be
present in the airline market of the country, where a few big players are found to cater to the
demands of a considerably big population.
Answer 3:
An economy, in general, in its path of progress passes through several business cycles. A
business cycle represents the dynamics an economy in general experiences, which includes four
stages, which are expansion, peak, the contraction and recession (Theweek.com, 2018). France,
in 2008, like the other Western countries, was at the recessionary stage of the business cycle.
However, with time, the government of the country with its robust policy framework helped the
economy to gain pace with an annual steady growth rate of 1.2%.

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Figure 3: Government Budget of France
(Source: Tradingeconomics.com, 2018)
Taking reference from the above statistics, the public budget of the country, which went
drastically down in 2008, has slowly increased over time, though it remains negligibly negative
(2016).
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
460000
470000
480000
490000
500000
510000
520000
530000
540000
550000
GDP of France
GDP
Figure 4: GDP of France over the years
(Source: As created by the author)

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The country’s economic growth is also seen to gain pace post 2008, as the GDP of the
country is seen to consistently increase from 2008 until the recent period. This in turn indicates
that the country is recovering from its recessionary situation. The rate of inflation of the country
in the recent period is seen to decrease from 1.2% to 0.8%. The unemployment rate, though
considerably high (9.8%) is also seen to decrease gradually from the previous period (10%). All
these indicators together assert that the economy of France is currently at the expansionary stage
of the business cycle.
Answer 4:
The demand and supply side dynamics of a country, in macroeconomic sense, are
determined by the aggregate demand curve and the aggregate supply curve of the economy
respectively, based on the Keynesian approach. Together these curves, determine the overall
price level and the demand and supply of goods and services in an economy, in the short run as
well as in long run.

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LRAS2
LRAS0 LRAS1
SRAS1
Y0 Y1 Y2
Y
P0
P1
P2
AD
E2
E0 E1
SRAS0
SRAS2
P
Figure 5: France economy in terms of AD-AS Model
(Source: As created by the author)
The economy of France, with its lowering recessionary situation can be said to be
presently experiencing expansion, which is evident from the continuously increasing GDP. The
expansion of production is followed by a reduction in the cost of production, which leads to fall
in the overall price level with the increase in the output, which can be seen from the above figure
(Benigno 2015). The constant increase in economic productivity leads the SRAS curves to move
rightwards, which in turn indicates towards potential rightward shifts of the LRAS curves is the
trend continues. The country, which is presently at E1, is expected to move towards E2 with the
increase in the economic growth.

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Answer 5:
The factors, which contribute primarily to the growth of the economy of France, as per
the AD-AS Model, are the GDP, unemployment and inflation dynamics. As per the given article
it can be asserted that based on the current situations, the country needs to take expansionary
policies. Reduction in tax and expansion of government expenditures can help the economy to
increase employment as well as income in the hands of its residents. The increase in income can
help in increasing the aggregate demand thereby increasing the scope of productivity in the
economy of the country (Gabisch and Lorenz 2013).
Answer 6:
Education, by increasing the skills and capabilities of people, can help in increasing the
productivity of the economy, in terms of a better skilled and able labor force as well as increase
in the human capital in the economy. Thus, if Macron decides to invest in education, this may
help the productivity of the country to increase, which can be shown as follows:

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LRAS0 LRAS1
SRAS1
Y0 Y1
Y
P0
P1
AD
E0 E1
SRAS0
Figure 6: Benefit of education expenditure in increasing productivity
(Source: As created by the author)
The above demand supply figure suggests that, if the education expenditure is increased
by the government of France, then it can be beneficial for the country in the long run in the
aspects of skill development among the workforce, which in turn may contribute positively in the
employment, productivity and economic growth scenario of the country (Benigno 2015).

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References
Aph.gov.au (2018). Australian Airline Industry – Parliament of Australia. [online] Aph.gov.au.
Available at: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/
Parliamentary_Library/pubs/rp/rp0203/03RP10# [Accessed 17 Jan. 2018].
Benigno, P., 2015. New-Keynesian Economics: An AS–AD View. Research in
Economics, 69(4), pp.503-524.
Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants of
market structure. The RAND Journal of Economics, 44(3), pp.462-487.
Gabisch, G. and Lorenz, H.W., 2013. Business cycle theory: a survey of methods and concepts.
Springer Science & Business Media.
Okuguchi, K. and Szidarovszky, F., 2012. The theory of oligopoly with multi-product firms.
Springer Science & Business Media.
Polkinghorn, A., 2016. Economies of scale. Br J Gen Pract, 66(648), pp.351-351.
Theweek.com (2018). Emmanuel Macron has misdiagnosed France's ailing economy. [online]
Theweek.com. Available at: http://theweek.com/articles/705135/emmanuel-macron-
misdiagnosed-frances-ailing-economy [Accessed 17 Jan. 2018].
Tradingeconomics.com (2018). France Government Budget | 1959-2018 | Data | Chart |
Calendar | Forecast. [online] Tradingeconomics.com. Available at:
https://tradingeconomics.com/france/government-budget [Accessed 17 Jan. 2018].