Economics Assignment: Microeconomics, Macroeconomics Analysis

This economics assignment is divided into two parts: microeconomics and macroeconomics. Part A focuses on microeconomic principles, specifically examining the Australian airline industry, market structures, and economies of scale. It analyzes the industry's oligopolistic market structure and how economies of scale influence it. Part B delves into macroeconomics, analyzing the French economy in 2017, including its business cycle (economic depression), and using the AD-AS model to represent its economic conditions. The assignment evaluates the factors contributing to economic growth, including demand-side and supply-side factors, and proposes that education and labor market reforms are crucial for stimulating long-term economic growth in France. The assignment concludes by emphasizing the importance of education in developing a skilled workforce and promoting economic development.

Running Head; ECONOMICS ASSIGNMENT 1
ECONOMICS ASSIGNMENT
Name:
Institution:
Course Code:

ECONOMICS ASSIGNMENT 2
Part A: Microeconomics (20 marks)
Australian Airline Industry
Question 1
Economies of scale
From business economics point of view, economies of scale can be defined as a process of
producing more units of goods and services on large scale which consume fewer input costs
(Newton & Carnevali, 2010). If we relate economies of scale to Australian Airline Industry, then
a clear definition from this perspective would be asserted as follows:
Economies of scale of Australian Airline Industry occur when the industry undergo growth and
development and increase its production units. Finally the industry will have a better opportunity
to decrease its costs.
Market structures that require economies of scale
The main market structures in economics include perfect competition, monopoly, oligopoly and
monopolistic competition. A perfect competition market structure is define from a perspective of
many buyers and sellers. Products in perfect markets are homogeneous (Martin, 2009). On the
other hand, monopoly market structure is defined from a perspective of many buyers and a single
seller who dominate the whole market. Oligopoly market is dominated by few number of large
sellers. On the other hand, monopolistic competition involves imperfect competition where
products sold have been differentiated through branding.
With a clear understanding of these market structure, the most appropriate market structures that
require economies of scale are monopoly and oligopoly.
Economies of scale and oligopoly
Oligopolistic market structure can be established by existence of economies of scale in different
types of industries. This market structure has few sellers of similar products (Dann & Dann,
2004). If the industry is producing units that constitute a portion of the total available market,
then the cost of production is reduced. As a result, the number of firms in the industry are
reduced into a small number where each firm supply a sizable part of the total market demand.
Economies of scale and monopoly
Monopoly market structure can be established through economies of scale. This market has a
single seller of a particular product. There are many buyers. Industries that dominate the market
are likely to produce large units since the level of competition in the market is minimal. The

ECONOMICS ASSIGNMENT 3
average costs per unit of output reduce as production increase. A firm that produce this product
will continue to produce large units until market demands are satisfies. The reduced costs of
production culminate from economies of scale and a firm supplying this product may become a
monopolist in the long run.
Question 2
If we consider the line graph below, each market structure has unique characteristics. We will
determine market structure for Australian Airline Industry after analyzing features of each
market structure.
Perfect competiition…………….monopolistic…………..oligopoly…………monopoly
(large buyers and sellers) (differentiated product) (small seller) (singe seller)
(Free entry) (differentriated products)
(Identical product)
No market power small market power large market Power complete power
Australian Airline Industry operated as an oligopoly market structure. This is because, the
industry constituted few number of service providers. From Australian Airline Industry case
study, there are only two sellers of airline services. That is, Qantas and Virgin Blue. These two
companies provide similar services to their customers. The only difference between these
companies is based on mode of provision of airline services. In that connection, although the
product is similar, product differentiation has been employed to brand airline services that meet
consumer’s lists of preference.
The number of seller have tried to differentiate their airline services. For instance, Qantas
differentiated airline services by trying to defend its market share through service upgrades along
with product innovations such as the CityFlyer services on key trunk routes. On the other hand
Virgin Blue deals with leisure travel over major trunk routes rather than an integrated trunk and
regional network which also follow under the category of airline services. It is clear that the two
industries try to differentiate the services by rebranding airline services so as to satisfy their
customers as we as to meet market demand (Balch, 2013). This is oligopolistic market structure.

ECONOMICS ASSIGNMENT 4
Part B: Macroeconomics (30 marks)
Emmanuel Macron has misdiagnosed France's ailing economy
Question 1
The business cycle that France faced in 2017 was economic depression. This cycle is associated
with increase in the rate of unemployment, increase in the rate of inflation and decrease in the
rate of GDP. GDP increased from 0.4 to 0.5, unemployment increased from 9.6% to 10% while
inflation increased from 0.8% to 1.2%. This is a clear indicator that economic condition in
France is not stable. The bar graph below is a clear indicate that France faced economic
depression in 2017.
last reference previous
0
2
4
6
8
10
12
macroeconomics indicators for Framce, 2017
GDP growth rate unemployment rate inflation rate
(Source: Generated through Excel based on macroeconomics indicators for France, 2017)
Question 2
The French economic depression or recession of 2017 can be represented by AD-AS model.
Aggregate demand –aggregate supply model indicates the output level in terms of GDP and price
level in terms of inflation and unemployment and indicated on Macroeconomic Indicators for
France, 2017.
(Source: “Aggregate Demand and Aggregate Supply” in CyberEconomics by Robert Schenk).

ECONOMICS ASSIGNMENT 5
From the above AD-AS model, the macroeconomic model consists of inflation, unemployment
and GDP of France in 2017. Both inflation and unemployment represent price level while GDP
represents output of France in 2017. It is clear that leadership of Emmanuel Macron has not
enabled France to undergo growth and development. From AD-AS model, the equilibrium point
is less than potential output of French economic condition in 2017. What the president needs to
do in order to have a favorable economic stability is based on GDP, inflation and employment
(Krugman, Obstfeld & Melitz, 2012). The rate of unemployment and inflation need to be kept
low. On the other hand, GDP per person should increase. If these factors are considered, AD-AS
model indicates an equilibrium point in the economy.
Question 3
Factors contributing to economic growth by AD-AS model
Economic growth can be defined as an increase in real GDP of a country. When the value of
goods and services produced by a particular country increase in value, then we consider that as
economic growth. There are demand-side factors and supply-side factors of economic growth as
demonstrated by AD-AS model.
Demand-side factor of economic growth
1. Consumers’ spending. If the consumers of goods and service use much of their earning to
purchase goods and services, a lot of money will be in circulation (Hausman, 2007). This
money will be used in a lot of economic activities that in return promote economic
growth.
2. Interest rates. If interest rates are low, investors will be encouraged to borrow money
which will motivate firms to invest. Consumers will be willing to spend on goods and
services.
3. Consumer confidence. Economic growth depends on confidence of consumers and
business. When the consumer is confident on which business to venture, then he will be
motivated to borrow and spend (Sampson, 2013). As a result, there will be rise in
economic growth. Unconfident consumer is always pessimistic and will only save or
reduce spending thus reducing economic growth.
4. Asset price. Increase in value of assets will forces people to spend more money that can
increase economic growth.

ECONOMICS ASSIGNMENT 6
Supply-side factors of economic growth
1. Levels of infrastructure. If the government supply resources to invest on transport, roads
and communication, then firms are likely to lower costs and increase on production.
Economic growth face competition at global level (Marshall, 2013). If a country fail to
invest on infrastructure, then economic growth will become a challenge.
2. Human capital. Productivity of workers has a perfect positive correlation to rate of
economic growth. Higher rate of production culminate to higher economic growth.
3. Technological development. The higher the technology the higher the rate of economic
growth.
4. The strength of labour market. Labour market represents workforce. Strong labour
market promotes economic growth.
The policy that the French government need to undertake to stimulate economic growth is labour
market law. This will promote employment sector where employers will be willing to recruit
many workers in their firms. This will enable France to reduce the rate of unemployment. With
reduction in the rate of unemployment France will receive higher GDP per person along with
favorable aggregate demand.
Question 4
Education is very important as far as economic growth of a country is concerned. Labour
markets are also very important for economic growth and development. Investment on workers’
education would propel economic growth of France as indicated below.
1. Workers will gain necessary skills and knowledge in different fields. Therefore, firms
will be in a position to hire qualified workers. This will increase output per worker in the
firm and contribute to economic growth.
2. Education will enable workers to gain skills that will be applied in creating employment.
The rate of unemployment in France is alarming and government alone cannot solve this
issue. There is need to involve investors so as to create new jobs at personal level. This
must apply education of workers.
3. Workers will gain skills on how to develop infrastructure in France. In that connection,
there will be development in terms of roads, transport systems and communication
networks (Wilson, 2006). This will assist firms to cut down costs of production. There

ECONOMICS ASSIGNMENT 7
will be a lot of savings from these firms. The government will collect a lot of revenue
from these firms.
4. Macron would achieve long-run objectives of economic growth and development in
France since educating workers is a way of empowering them. Education can be utilized
by every worker in France while labour markets concentrate on a small portion of
workers. It is better to empower more people indirectly through education than
empowering fewer people directly through labour markets.
The diagram below demonstrates long-run economic growth that France would achieve through
educating workers.
(Source: Long-Run Growth by Lumen Boundless Economics).
The diagram indicates how long-term growth incorporates worker productivity. In economics, it
is clear that the influence of human capital, physical capital, fixed capital and technology
contribute to long-run growth (Dann & Dann, 2007). L1 indicates the level of output produced
per worker at point A as a result of a single increase in labour force. This denote marginal
product. In the long-run, the labour force changes to point B at L2 which indicates a positive
growth in the economy. This can be associated with educating workers with skills and
infrastructure that result to increase in skilled labour in the country. That is how France will
achieve economic growth in the long-run.

ECONOMICS ASSIGNMENT 8
References
Balch, K. (2013). BEA1010 Business finance for accountants: Lecture 1a [PowerPoint slides].
Dann, S., & Dann, S. (2004). Strategic Internet marketing. Brisbane: John Wiley & Sons.
Dann, S., & Dann, S. (2007). Competitive marketing strategy. French’s Forest, NSW: Pearson
Education.
Hausman, D. M. (Ed.). (2007). The philosophy of economics: An anthology (3rd ed.).
Cambridge: Cambridge University Press.
Krugman, P. R., Obstfeld, M., & Melitz, M. J. (2012). International economics: Theory & policy
(9th ed.). Harlow: Pearson Education.
Marshall, B. (2013). Accounting Information Systems (Australian edition). French’s Forest,
NSW: Pearson Australia. ISBN-13: 9781442542594.
Martin, D. (2009). ‘Twitter quitters post roadblock to long-term growth’, Nielsen Wire,
http://blog.nielsen.com/nielsenwire/online_mobile/twitter-quitters-post-roadblock-to-
long-term-growth (accessed 10 July 2010).
Newton, L., & Carnevali, F. (2010). Researching consumer durables in the nineteenth century:
The case of the piano. Business Archives: Sources and History, 101(November), 17-29.
Retrieved July 17, 2013 from http://vle.exeter.ac.uk/mod/resource/view.php?id= 217775.
Sampson, H. (2013). International seafarers and transnationalism in the twenty-first century.
New Ethnographies. Manchester: Manchester University Press.
Wilson, F. (2006). The Freemium Business Model, A C: Musings of a VC in NYC,
http://www.avc.com/a_vc/2006/03/the_freemium_bu.html (Accessed 6 July 2010).