Economics Report: Managing Markets in Australian Cafe Industry

This economics report analyzes the factors affecting a new cafe business in Victoria, Australia. It examines government regulations at federal, state, and local levels, including licensing, taxes, and consumer protection laws. The report then explores economic forces such as supply and demand, demonstrating how shifts in demand influence pricing and equilibrium. It further analyzes the market structure, identifying the cafe industry as monopolistically competitive, and discusses the concept of elasticity, highlighting the elastic demand for coffee due to the availability of substitutes. The report uses diagrams to illustrate concepts like demand shifts and elastic demand, and concludes by providing a reference list of sources used in the analysis.

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

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Table of Contents
Government regulations in Australia.........................................................................................4
Economic forces.........................................................................................................................6
Supply and demand................................................................................................................6
Market structure and pricing..................................................................................................7
Elasticity.................................................................................................................................8
Reference list............................................................................................................................10

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Abstract
The new café will be opened in Victoria, which is one of the popular states in Australia.
However, being a new entrant in the market it will be facing various government regulations
and economic forces that will be affecting the decision making of the producer. Since there
are lot of cafes in Australia, the new café will be facing stiff competition from the other cafes.
In order to open a new business, the businessman will also have followed various rules set by
the Australian government.

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Managing markets
Government regulations in Australia
The three levels of government in Australia are federal, state or territory and local.
The power is usually shared between these three levels. Each of these levels of government
has its own responsibilities, services and powers. Each of them is elected by the people they
provide for government. Regulations are very important for the proper functioning of the
society along with the economy. In Australia, the regulation is made at the federal level as
well as by the territories and states and a local government as regulations and by laws (Moore
and Higgins 2016). Australia is also recognized internationally for the regulatory policy along
with governance arrangements. The Australian government also tries hard for improving the
quality of its regulation including reducing the burden of regulation on business, individuals
and community organizations. It improve the quality of regulations which minimizes the
burden of regulation The commonwealth government portfolios known to promote regulatory
quality. The Federal parliament known to have exclusive jurisdiction in a small number of
areas. Most of the powers are shared between the federal and state governments.
Before opening a café, the individual should be obtaining the government issued
license. Every business should be having a license for operating legally (Eniola and Entebang
2015). As a business, the individual should be paying Income Tax Along with the Goods and
Services Tax. It also need a Tax File number. For paying GST, its need registering with the
Australian Taxation Office. The coffee shop will also require insurance especially Public
Liability Insurance. It is also compulsory to file for intellectual property protection.
The Australian business and territory government legislation known to exist for
protecting the consumers and community. It also exists for promoting fair trade and
competition in the market. These laws also govern how the business should interact with the

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consumers and suppliers and other business. Australia also has a national statutory
framework for ensuring that trading is fair for both the consumers and business which is
known to be enforced by the Australian Competition and Consumer Commission. (ACCC).
The Australian consumer law known to provide regulations for the unfair contract terms,
product safety laws, lay by agreements and consumer rights guarantees
(Parliament.vic.gov.au. 2019).
The Australian government, state and territory governments along with the local
governments who jointly administer environment protection.
There are over 500 local councils which make local laws for their region or district.
The state parliament is the decision making body of state government (Gray, Harymawan.
and Nowland 2016). The Local Government Act of 2009 known to establish local law in
order to meet specific needs of the community and interim local law for enabling local
governments in order to adopt a local law for addressing a particular issue.

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Economic forces
Supply and demand
Demand refers to the quantity of a product which is desired by the buyers. On the
other hand, the supply represents how much the market can offer. The business of the coffee
shop hugely depends on the demand of the coffee. The coffee shop mainly depends on the
demand of coffee in Australia. Therefore, it can be said that when the demand of coffee will
rise, it will be profitable for the new café. Both the supply and demand of the service and
good known to affect the revenue attainable from the market. In some cases when there will
be abundant supply and little demand, the price of coffee will then decrease (Bas Mayer and
Thoenig 2017). The supply side of the theory states how much of a product a business owner
can supply to buyers and at what price. Therefore, for this reason it can be said that supply
and demand are important to a business. The business should also keep an eye on the forces
of supply and demand which can affect the prices which they can able to command. In case
of demand, a rise in demand will be increasing the price and vice versa. In case of supply, a
rise in supply will be forcing the price downward and vice versa (Wang and Lu 2016).
Although supply and demand are expected to see in the context of consumer sales, it can also
affect the expense of the company.
The diagram below shows that due to rise in demand for coffee, the price of coffee
will be increasing from the P0 to P1. Here S is the supply curve which is taken as constant.
Therefore, when the demand of coffee among the consumers will be increasing, the price of
coffee produced by the café will increase and the quantity will therefore reduce from Q1 to
Q0. The new equilibrium position will also change.

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P0
P1
Quantity
Pric
e
Q0 Q1
S
Figure 1 Increase in demand for coffee
Market structure and pricing
The coffee shop is known to affect monopolistic competition. The beverage and the
restaurant industries are known to represent the monopolistic competition. Monopolistic
competition takes place when producers sell the products which are differentiated from one
another and therefore they are not perfect substitutes. The coffee industry in Australia is
known to follow monopolistic market structure. Monopolistic competition takes place when
many firms produce similar kind of goods or services but each of them maintains some
independent control of its own price (Carson and Richard 2018). There are many firms that
have market share within the coffee industry making a low concentration of the share of
market. The monopolistic coffee industry known to have many firms, freedom of entry and
exit of firms and the firms also produce differentiated products. Firms in case of
monopolistic competition are productively inefficient and they also make normal profits in
the long run but could make supernormal profits in the short run (Nikaido 2015). The firms
are known to produce differentiated products and have inelastic demand since they are the
price makers. The graph below shows the monopolistic market structure of the coffee
industry (Kreps 2019). Where it is going to earn supernormal profit in the short run.

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However, the cafe will be earning normal profit in the long run. The firm is going to
maximize profit where the marginal revenue equals marginal revenue. Product differentiation
is also a key element in the coffee industry
Figure 2Monopolistic market structure
Elasticity
The coffee industry in Australia is usually elastic in nature. The elastic demand takes
place when price have big effect on the quantity that consumers want to buy. The demand
will be inelastic when it will be not responding much to the change in price. On the other
hand, demand will be elastic in nature when the demand changes a lot with the change in
price. Since the demand for coffee from this particular coffee shop have close substitutes, the
demand for coffee will be elastic in nature (Bade and Parkin 2015.). The elasticity is known
to be greater in the long run since people are freer for adjusting their behaviour. The elastic
demand is known as that economic concept which occurs when the quantity of a product

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P0
P1
Q0Q1
Price
Quantity
D
responds intensively to a change in the product price. The law of demand states that when the
price of a product is known to increase. The quantity demanded are known to decrease when
people are not willing to spend more money on a particular product. The diagram below
shows how elastic demand looks. In this diagram it can be seen that a smaller percentage
change in price leads to huge change in the demand of goods. Since the coffee have elastic
demand, it can be said that if the new café raises its price slightly, the demand for coffee will
reduce sharply. When price will be changing from P0 to P1, the quantity of coffee demanded
will decrease from Q0 to Q1, which is much greater to the increase in price.
Figure 3Elastic demand

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Reference list
Bade, R. and Parkin, M., 2015. Foundations of microeconomics. Pearson.
Bas, M., Mayer, T. and Thoenig, M., 2017. From micro to macro: Demand, supply, and
heterogeneity in the trade elasticity. Journal of International Economics, 108, pp.1-19.
Carson, L. and Richard, L., 2018. Product Differentiation and Demand Elasticity (No. CEP
18-12).
Eniola, A.A. and Entebang, H., 2015. Government policy and performance of small and
medium business management. International Journal of Academic Research in Business and
Social Sciences, 5(2), p.237.
Gray, S., Harymawan, I. and Nowland, J., 2016. Political and government connections on
corporate boards in Australia: Good for business?. Australian Journal of Management, 41(1),
pp.3-26.
Kreps, D.M., 2019. Microeconomics for managers. Princeton University Press.
Moore, T. and Higgins, D., 2016. Influencing urban development through government
demonstration projects. Cities, 56, pp.9-15.
Nikaido, H., 2015. Monopolistic Competition and Effective Demand.(PSME-6). Princeton
University Press.
Parliament.vic.gov.au. (2019). Parliament of Victoria - Three Levels of Government. [online]
Available at: https://www.parliament.vic.gov.au/about/the-parliamentary-system/three-level-
of-government [Accessed 23 Mar. 2019].
Wang, Y.B. and Lu, J.R., 2016. A supply-lock competitive market for investable products.
Asian Development Policy Review, 4(4), pp.127-133.

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