ECOM4000 - Exploring Market Structures, Business Cycles & Indicators

This assignment delves into market structures, business cycles, and macroeconomic indicators, focusing on examples from Australia, Spain and India. Part A analyzes the market structure of Coles and Woolworths as an oligopoly and the vegetable market in Australia as a perfectly competitive market, further discussing the impact of price wars on farmers. Part B examines Spain's business cycle phases, calculating unemployment rates and using aggregate demand and supply graphs to illustrate economic changes. Part C investigates India's expansionary phase, assessing the impact of falling energy costs and identifying consumer inflation as a key macroeconomic indicator to monitor. The assignment uses graphs and calculations to support its analysis, providing a comprehensive overview of these economic concepts.

Running Head: Market Structures and Business Cycles
Market Structures, Business Cycles and Macroeconomic Indicators
By (Name)
(Tutor)
(University)
(Date)

Market Structures and Business Cycles 2
Market Structures, Business Cycles and Macroeconomic Indicators
Part A
Question 1
The market structure under which the operation of Coles and Woolworths takes place is
oligopoly market structure (Andrew, 2014). This is because the supermarkets in Australia are
several, but there are some giant supermarkets (McTaggart, Findlay and Parkin, 2012). The giant
supermarkets controls the biggest market share (Richards and Devin, 2016).
Fig: Oligopolistic Market structure
Price D
d
F
P* e MC1
MC2
G d’
H D’
I
Q* Quantity
Where MC is Marginal Cost. Oligopolies produce at MC = MR (Marginal Revenue).
They sell quantity Q* at price P*. The demand curve for oligopoly firms is dD’ and has a kink.
The reason for the kink is because the firms only follow a price cut but ignores a price rise. The
path followed by a price raising oligopoly firm is ed’ because other fails to follow and thus a loss
of market share (Abourizk, 2017). The path followed by price cutting oligopoly firm is eD’
because all others follow. The gap GH is a region where changes in MC has no impact on
quantity change; only price changes (Gottheil, 2013).
Question 2
In this market, players have market power. Competition is either through price or
quantity (Strong, 2016). However, players are limited from raising prices to increase revenues.
This is because, if one of the competing firms raise its price level, other players will ignore the

Market Structures and Business Cycles 3
move, this makers the initial customers for the price raising firm to shift their demand to other
firms that never raised the price. The one firm ends up with reduced revenues. For price cuts, the
revenues are also reduced because all other firms follow and thus the market share remains the
same but sold at a lower price. It is on the interest of Coles to have price wars with Woolworths.
This is because, Coles trying to kick Woolworth out of the market, it’s making it less profitable
to stay in business. Cole is stealing a large market share from Woolworths; thus Woolworth is
losing from the price wars.
Question 3
Vegetables in Australia fall under competitive market structure. This is confirmed by
source two and three. On the 2nd source, vegetable growers are noted to be impacted by the price
discounts (Low, 2015). The farmers are price takers as they can only sell at the price offered by
the supermarket players (Besanko, Braeutigam and Gibbs, 2011). On the 3rd source, 13% of the
136,800 firms (17,784 firms) sell directly to supermarkets. In perfect competitive markets,
players are many, products are the same, and players can only increase revenues by raising the
quantity of sales; they don’t have power over prices.
Question 4
The price offered from price wars does not take into consideration the cost for producing the
products. Thus, individual farmers may be selling at a loss or at a profit that is insignificant.
Graph: Short run Perfect competition
Price
MC
ATC
ATC Loss
P P=D=AR=MR
Q Quantity

Market Structures and Business Cycles 4
Players in this market produce at MC = MR. in this case, farmers are making losses
because the price level is below the ATC (Average Total Cost). The losses in the short run will
discourage some farmers and they will leave the farming business. Eventually, the losses will be
eliminated as the number of farmers reduce and in the long run, the farmers will make only
normal profits. The discouraged farmers may decide to produce other profitable products to
eliminate the losses; otherwise they may change the line of business.
Part B
Question 1
Spain was on a contractionary business cycle. Source one shows that the growth rate was
negative (Román, 2014). The 2nd source shows that, the spending by consumers had fallen,
indicating a reduction in aggregate demand. The unemployment rate was also very high.
Graph: Spain Aggregate Demand and Supply
Price Level
LRAS
SRAS
P0
P1 AD0
AD1
Y1 Y0 F Real GDP
Spain has not reached the F level of real GDP where it has fully employed all its resources. The
Short Run Aggregate Supply (SRAS) curve intersect with AD curve at P0Y0. In 2013, the AD fell
from AD0 to AD1, this lowers real GDP from Y0 to Y1, resulting in price level falling to P1.
Question 2
Spain had entered an expansionary business cycle in 2014. This is confirmed by the increment in
consumer spending from 91.15 in the 3rd quarter of 2013 to 91.55 in the first quarter of 2014.
There was a slight increase in unemployment rate in the 1st quarter of 2014, but a big decline on
the 2nd quarter. The economic growth rate also changed from negative to positive.

Market Structures and Business Cycles 5
Graph: Spain Aggregate Demand and Supply
Price Level
LRAS
SRAS
P1
P0 AD1
AD0
Y0 Y1 F Real GDP
The Short Run Aggregate Supply (SRAS) curve intersect with AD curve at P0Y0. In 2014, the
AD rose from AD0 to AD1, this raised real GDP from Y0 to Y1, resulting in price level rising to
P1.
Question 3
Unemployment rate = Unemployed/ (unemployed + employed)
Rates unemployment rate = 24.47
The number of employed = 17,353,000
24.47¿ U
( 17,353,000+ U ) ∗100
24.47¿ 100 U
( 17,353,000+U )
24.47(17,353,000 + U) = 100U
424,627,910 +24.47U = 100U
424,627,910 = 100U - 24.47U
424,627,910 = 100U - 24.47U
424,627,910 = 75.53U
U = 5,621,977
The number of people unemployed is 5,621,977

Market Structures and Business Cycles 6
Part C
Question 1
India is on the expansionary phase of business cycle. There are certain allegations
confirming this; the economy is fast-growing, there is recovery on private investment,
households have higher real income, inflation is high meaning that aggregate demand is high, the
tightening of monetary policy is also an indicator that the economy is doing well since
expansionary policies would otherwise be employed and lastly the growth of GDP by 7.3%
(Pandey, 2016).
Graph: Indian Aggregate Demand and Supply
Price Level
LRAS
SRAS
P1
P0 AD1
AD0
Y0 Y1 F Real GDP
The Short Run Aggregate Supply (SRAS) curve intersect with AD0 curve at P0Y0. In 2016, the
AD for India rose from AD0 to AD1, this raised real GDP from Y0 to Y1, resulting in price level
rising to P1. India is operating at price P1 and real GDP level Y1.

Market Structures and Business Cycles 7
Question 2
The falling energy costs will be inflationary for the Indian economy. This is because the
economy is already under inflation. Lower energy costs will add to the income of households; an
increase in disposable income will consequently raise aggregate demand.
Graph: Indian Aggregate Demand and Supply after a fall in energy costs
Price Level
LRAS
SRAS
h P2
P1
AD2
P0 AD1
AD0
Y0 Y1 Y2 F Real GDP
In 2016, the AD for India rose from AD0 to AD1, this raised real GDP from Y0 to Y1, resulting in
price level rising to P1. If now energy costs fell, the increased disposable income will raise
aggregate demand from AD1 to AD2; Real GDP will rise from Y1 to Y2; price level will rise from
P1 to P2 (Inflationary).
Question 3
The Indian macroeconomic Indicator that was to be observed closely is the consumer
inflation. This is because the inflation rate was high, and the falling energy costs were most
likely to push it higher. This would have worsened the situation of this economy. The reserve
bank of Indian through its monetary policy tools could lower inflation by raising interest rates or
lowering money supply. At higher rates, borrowing from financial institutions will be
discouraged and households won’t have sufficient funds to maintain the high aggregate demand;
falling aggregate demand pushes price down. This is a similar case for reduced money supply.

Market Structures and Business Cycles 8
Bibliography
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Low, C. (2015). Woolworths trails Coles on grocery prices: Macquarie analysis shows. [Online]
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[Accessed 8 Sep. 2018].

Market Structures and Business Cycles 9
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