Economic Literacy Skills Assignment: Market Analysis and Policy

This economics assignment delves into various economic concepts, offering a comprehensive analysis of market structures, macroeconomic factors, and policy implications. The assignment begins by defining economies of scale and its implications, followed by an analysis of the Australian airline market as a duopoly. Part B of the assignment explores the business cycle of the French economy, utilizing AD/AS models to illustrate economic expansions and contractions. It further examines the impact of government policies, such as expansionary monetary policies and investments in education, on economic growth. The student provides graphical representations and detailed explanations to support their arguments, referencing relevant economic theories and academic sources. The assignment concludes with recommendations for the French government to foster economic growth and stability through strategic fiscal and educational policies.

Running head: ECONOMIC LITERACY SKILLS
Economic literacy skills
Name of the student
Name of the University
Author note

1ECONOMIC LITERACY SKILLS
Table of Contents
Part A:........................................................................................................................................2
Question 1:...............................................................................................................................2
Question 2:...............................................................................................................................3
Part B:.........................................................................................................................................4
Question 3:...............................................................................................................................4
Question 4:...............................................................................................................................4
Question 5:...............................................................................................................................5
Question 6:...............................................................................................................................6
Reference:................................................................................................................................7

C
C*
Q Q*
Q
AC
LRAC
2ECONOMIC LITERACY SKILLS
Part A:
Question 1:
Economies of Scale (ES) are an economic term, which represents that firms achieve
cost advantages due to their scale of operation (David 2015). It is measured by the amount
of goods and services produced by a firm including the cost of production. With rise in goods
and services produced, by a firm on a large scale, it experience lower input cost and over
the time as the firm continues to operate, it experience Economic of Scale (Ethier 2014).
According to the economic growth theory, firms experience ES once it starts to grow its
production, which can be depicted by the Figure 1.
Figure 1: Economies of scale
Source: (Created by Author)
Above figure depicts that once the firm increase its production Q to Q*, cost of
operation reduced from C to C*. The Long Run Average Cost (LRAC) represents the cost of
operation of the firm and it aids to determine the level of ES the firm enjoys over the time.
Economies of Scale operate the best in the monopoly market. Owing to the market
share and control over the input industry, firms enjoy lowered cost input cost. Besides this,
Increasing Returns to Scale (IRS) aids the monopoly firm to increase its output leading to
face Economies of Scale (Carvallho and Marques 2014). Considering the figure 1, it can be
seen that firm enjoys ES until the production remain within the downward sloping range of
the LRAC and beyond this, firm starts to face Decreasing Scale of Return.

3ECONOMIC LITERACY SKILLS
Question 2:
Australian airline is one of the largest airlines that operate both the domestic and
international flights (Zhang, Sampai and Fu 2016). Considering the mentioned article in the
assignment paper, it can be found that Australian airline market is presently a duopoly
market, where only two airlines operate. Prior to 2003, there were four airlines, which were
Impulse Airlines, Qantas, Ansett and Virgin Blue. However, within the end of 2003, according
to the figure 2, there were only two players namely Virgin Blue and Qantas in the Australian
airline market.
Figure 2: Players of Australian airlines
Source: (Created by Author)
An oligopoly market is such a marker, where small number of seller provides services
to a large number of populations (Feng, Li and Li 2014). Considering the Australian airline
market prior to 2003, it can be seen that, there were four players making it an oligopoly
market. However, during the end of 2003, only two players were present and according to
the definition of duopoly, it can be marked as the duopoly market.
Qantas
Australian
airline
players
Virgin Blue

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Part B:
Question 1:
A business cycle includes four stages namely expansion, peak contraction and
recession (Sherman 2014). Like all the western economies, France has faced a large
recession back in 2008 and since then the government policies aided the economy to grow
at a steady rate of 1.2% annually. In order to state the present business cycle position of
France’s economy, considering the GDP growth rate along with other macroeconomic
variables like unemployment and recession need to be considered.
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 3: GDP of France
Source: (Created by Author)
As shown in the figure 3, France is facing a growth in its economy since 2008 and
the recession is reducing gradually over the time. Unemployment level for France is high
compared to the other western economies, however enhanced government spending and
recent tax cuts has helped the domestic economy to survive the recession of 2008. Thus,
considering the current data for France, it can be stated that the economy is going through
an expansion stage.

5ECONOMIC LITERACY SKILLS
LAS0 LAS1
SAS1
Y0 Y1
Y
P0
P1
AD
E0 E1
SAS0
P
Question 2:
Aggregate demand (AD) and aggregate supply (AS) is one of the basic economic
tools, which bring in both the Keynesian approach of demand and Say’s law approach of
supply into a single diagram. It aids to find out the relationship between the price level and
quantity of goods and services produced by an economy both in long run and in short run
(Evans 2016).
Figure 4: AD/AS of France economy
Source: (Created by Author)
France economy presently is going though expansion stage, where it has been
facing reduced unemployment and recession along with growth in GDP (Berardi, Gautier
and Bihan 2015). These changes in the macroeconomic variables entails that the economy
of France have reduced cost and enhanced goods and services. Figure 4 portrays the
France’s economy, where the price level drops from P0 to P2 with an expansion of output
level from Y0 to Y2. Rightward shift of the Short run Aggregate Supply (SAS) depicts that
there is growth in productivity in the economy and if the trend continues, then there will be a
shift of Long Run Aggregate Supply curve too, from initial LAS0 to LAS1, where equilibrium
price and output will be P1 and Y1.

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LAS1 LAS0
SAS0
Y1 Y0
Y
P1
P0
AD
E0
E1
SAS1
P
Figure 5: AD/AS of France economy
Source: (Created by Author)
Let consider that if there is a contraction in the economy. Then figure 5 depicts the
AD/AS of France economy, where price will rise to P1 from P0 and output will fall from Y0 to
Y1.
Question 3:
According to the AD/AS model, macroeconomic factors like GDP growth, inflation,
unemployment and recession are the main causes that contribute to the economic growth of
an economy (Bowen and Sosa 2014). Considering the article mentioned in the assessment
paper, it can be stated that government of France should take expansionary monetary
policy. With rise in government expenditure as the tax cut or welfare benefit, the government
of France can produce more platforms for employment generation and enhance the amount
of disposable income for the citizens. This will effectively increase the aggregate demand
leading to better productivity and higher employment. Thus, with the effective expansionary
fiscal policy, government of France can provide a stimulus to the country’s economy.

7ECONOMIC LITERACY SKILLS
LAS0 LAS1
SAS1
Y0 Y1
Y
P0
P1
AD
E0 E1
SAS0
Question 4:
Education is one of the vital elements that can lead to higher productivity in an economy.
With better education will come better skill and with the better skill, productivity can be
enhanced (Blaug 2014). Thus, if the Macron invest education in order to enhance the level of
skills, then it would certainly be beneficial for the country because as the LAS shifts
rightward, from LAS0 to LAS1, it will reduce price and enhance the overall output level of the
country.
Figure 6: Education expenditure rise benefit
Source: (Created by author)
Considering the figure 5, it can be stated that if the government chose to expense
more in education, then it will be beneficial for economy in long run, because it will develop
skills among the workers. Rise in skills will help the economy to produce more goods and
services and structural change in the France’s labour force .is necessary. It will create new
jobs and hiring as well as attrition rate will be lower.

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Reference:
Berardi, N., Gautier, E. and Bihan, H.L., 2015. More facts about prices: France before and
during the great recession. Journal of Money, Credit and Banking, 47(8), pp.1465-1502.
Bowen, W.G. and Sosa, J.A., 2014. Prospects for faculty in the arts and sciences: A study of
factors affecting demand and supply, 1987 to 2012. Princeton University Press.
Carvalho, P. and Marques, R.C., 2014. Computing economies of vertical integration,
economies of scope and economies of scale using partial frontier nonparametric
methods. European Journal of Operational Research, 234(1), pp.292-307.
David Myers CEcD, M.A., 2015. economies of scale. Economic Development Journal, 14(3),
p.11.
David Myers CEcD, M.A., 2015. economies of scale. Economic Development Journal, 14(3),
p.11.
Evans, A. J. (2016). A Dynamic AD-AS Analysis of the UK Economy, 2002-2010. Journal of
Private Enterprise, 31(4), 97.
Feng, Y., Li, B. and Li, B., 2014. Price competition in an oligopoly market with multiple iaas
cloud providers. IEEE Transactions on Computers, 63(1), pp.59-73.
Sherman, H.J., 2014. The business cycle: growth and crisis under capitalism. Princeton
University Press.
Zhang, Y., Sampaio, B. and Fu, X., 2016. Duopoly competition between airline groups with
dual-brand services: the case of the Australian domestic market.