ECOM4000 Economics Assignment: Market Structures and Business Cycles

This economics assignment provides a comprehensive analysis of microeconomic and macroeconomic principles, with a specific focus on the retail industry in Australia and the economies of Spain and India. The microeconomic section examines market structures, particularly oligopolies like Coles and Woolworths, and perfect competition in the vegetable market, assessing the impact of price wars on farmers. The macroeconomic section analyzes Spain's business cycle phases from trough to recovery, using AD-AS frameworks, and evaluates Spain's unemployment rate. Additionally, the assignment discusses India's economic recovery phase in 2016, the impact of falling energy prices, and the role of the Reserve Bank of India (RBI) in managing inflation. The assignment concludes by emphasizing the importance of government and central bank intervention in stabilizing economic growth and maintaining economic health.

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

1ECONOMICS ASSIGNMENT
Table of Contents
Introduction......................................................................................................................................2
Part A: Microeconomics..................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................3
Question 3....................................................................................................................................4
Question 4....................................................................................................................................4
Part B: Macroeconomics..................................................................................................................5
Question 1....................................................................................................................................5
Question 2....................................................................................................................................6
Question3.....................................................................................................................................8
Part C: Heath of Indian economy....................................................................................................8
Question1.....................................................................................................................................8
Question 2....................................................................................................................................9
Question 3..................................................................................................................................10
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

2ECONOMICS ASSIGNMENT
Introduction
The present assignment focuses on the application of economic theories in the retail
industry of Australia. The study also analyzes on the current health of the Spain economy
through various macroeconomic indicators such as unemployment rate, GDP growth rate. The
assignment also assess on how India is still the fastest- growing nation in the globe gripped by
uncertainty. discusses about the phase of business cycle that the Indian economy has
experienced in the year 2016.
Part A: Microeconomics
Question 1
The two main supermarket chains namely Coles and Woolworths control near around
70%-80% of the market share of the food retail industry. These two supermarket chains operates
under oligopolistic market structure. Under this market structure, few sellers sell homogenous or
differentiated commodities. Coles and Woolworths dominate this market and have control over
product price. There has been existence of barriers in entry but have no hurdles in exiting this
industry. Despite globalization and international firms searching for new firms, no entities has
merged this Australian food retail sector. Even the firms operating in this industry are
interdependent on one another in terms of decision -making. However, action of Coles has
impact on Woolworths while determining price as well as output levels.

3ECONOMICS ASSIGNMENT
MC
MC2
D=AR
MR
Q1
P1
Quantity
Price
Figure 1: Oligopolistic market structure
Source: ( As created by Author)
The assumption that rival entity enhances its price, other firms might not follow. This is
turn leads to kinked demand curve. The upper portion of AR curve is price elastic than lower
portion. This is because the firms operating in this market do not follow high price but at lower
price these firms reduce prices too. Coles and Woolworths maximizes profit at Q1 and P1 where
MR= MC (Economicshelp.org. 2018).
Question 2
Under oligopolistic market structure, entities have the power to influence prices. The tries
to avoid price competition due to price war (Sloman, Norris and Garrett 2013). These entities
usually follow price rigidity policy, which depicts the circumstances where price apt to remain
fixed irrespective to demand and supply change conditions. If one entity tries to decrease price,
competitors might reduce their price. Moreover, if an entity tries to increase price, others might

4ECONOMICS ASSIGNMENT
not follow. It might lead to customers low for firms that intends to increase price. The entities in
this market prefer non- price competition. The pricing war might have huge effect on firms since
it creates deflationary pressure on business. Thus, this adversely impacts the revenue of entities
operating in thus market.
Coles and Woolworths have confirmed adoption of strategy with respect to price discount
war. This is because Woolworths and other entities in Australian food retail sector have recorded
price changes for keeping in line with Cole’s competitive prices.
Question 3
The vegetable market provided by the farmers operates under perfectly competitive
market structure. This is because several sellers produce homogenous commodities, which are
demanded by large number of food retail firms in Australian industry. The framers do not have
restrictions in entering and exiting this industry and are obligated to be price takers. Thus, price
wars drives farmers out of business.
Question 4
Declining price owing to price discount war might affect the farmers. The reason behind
this is that farmers might continue production but they might lack financing with time. This
might lower their morale and thus end up stooping production of commodities. The small
framers might be forced out of this market as diseconomies of scale cause that farmers might not
counter production of similar output at same cost.

5ECONOMICS ASSIGNMENT
Real GDP
Price
SRAS
LRAS
AD0
AD1
P0
Y0
P1
Y1
Part B: Macroeconomics
Question 1
During the year 2013, Spain was in trough phase of the business cycle. The economic
growth becomes negative and demand for products begins to decline in this stage. The AD-AS
framework helps to explain business cycle. The real GDP falls below potential GDP as shown in
figure below-
The AD curve shifts to left from AD0 to AD1 and the new equilibrium have less output
and low price level in comparison with original equilibrium. Rise in cost of inputs might shift AS
curve to left from AS0 to AS1. The new equilibrium will have less output and higher price.
Figure 2: Impact in AD
Source: (As created by Author)

6ECONOMICS ASSIGNMENT
AD
LRAS
SRAS1
SRAS0
Y0Y1
P1
P0
Real GDP
Price
Figure 3: Impact in AS
Source: (As created by Author)
Question 2
Spain had entered into recovery phase during the year 2014. The Spanish economy
started recovering from negative economic growth rate (Gabisch and Lorenz 2013). The
employment rate increased and demand as well as supply of goods started picking up. The real
GDP started increasing as AD and AS began increasing (Reisman 2013). However, price level
also increases owing to increase in demand for goods. However, as the supply of goods increases
AS curve shifts rightwards, thereby price falls and real GDP increases.

7ECONOMICS ASSIGNMENT
Real GDP
Price
SRAS
LRAS
AD1
AD0
P1
Y1
P0
Y0
AD
LRAS
SRAS0
SRAS1
Y1Y0
P0
P1
Real GDP
Price
Figure 4: Impact in AD
Source: (As created by Author)
Figure 5: Impact in AS
Source: (As created by Author)

8ECONOMICS ASSIGNMENT
Question3
The recent unemployment rate of Spain has been recorded at 15.28% in the year 2018.
However, the employment rate is 100%-15.28% =84.72%. If the total 17,353,000 people are
employed, then,
84.72%of total population= 17,353,000
Total population=20,482,766.8
Number of unemployed=20,482,766.8-17,353,000
=3,129,766.8
Part C: Heath of Indian economy
Question1
The Indian economy had been in the recovery phase of the business cycle in the year
2016. The GDP growth rate was at 7.3%, which shows that output gap reduced in this year and is
expected to close by first quarter of financial year 2017. In addition to this, the goods prices were
lower, inflation rate was below the target rate 5% and demand for goods also increased
(Courses.lumenlearning.com. 2018).

9ECONOMICS ASSIGNMENT
Trough
Peak
Recovery
Recession
Depression
Figure 6: Business cycle phase where Indian economy has been operating
Source: (As created by Author)
Question 2
Fall in energy prices will lead to rise in demand and supply of energy in the Indian
economy. However, the GDP growth will continue to increase or remain stable by this reduced
energy cost, driven by private consumption and private investment (businessline. 2018). Thus,
the impact has been shown in figure below:

10ECONOMICS ASSIGNMENT
Real GDP
Price
SRAS
LRAS
AD1
AD0
Y
P1
P0
Figure 7: Impact of fall in energy price in 2016 of the Indian economy
Source: (As created by Author)
Question 3
Inflation rate must be monitored closely in India by the RBI in the year 2016. For
controlling the risk to inflation, the RBI must tighten monetary policy and thus reduce the
interest rate by 0.25%. This will reduce the household burden of Indians and facilitate enterprise
to increase its borrowings (Mankiw 2014).
Conclusion
The above discussion concludes that central bank and government intervention is
necessary for stabilizing the growth rate and maintaining good health of the economy. Both the
Australian and Indian economy are now at recovery phase of business cycle and thus is expected
to reach at peak phase in the present years.

11ECONOMICS ASSIGNMENT
References
businessline. 2018. Nomura predicts India’s GDP growth at 7.8 %, 8% in 2016-2017. [online]
Available at: https://www.thehindubusinessline.com/economy/nomura-predicts-indias-gdp-
growth-at-78-8-in-20162017/article7976816.ece [Accessed 21 Sep. 2018].
Courses.lumenlearning.com. 2018. Business Cycles and Growth in the AD–AS Model |
Macroeconomics Fall 2018. [online] Available at: https://courses.lumenlearning.com/wm-
macroeconomics/chapter/growth-and-recession-in-the-as-ad-diagram/ [Accessed 21 Sep. 2018].
Economicshelp.org. 2018. [online] Available at:
https://www.economicshelp.org/microessays/markets/oligopoly-diagram/ [Accessed 21 Sep.
2018].
Gabisch, G. and Lorenz, H.W., 2013. Business cycle theory: a survey of methods and concepts.
Springer Science & Business Media.
Mankiw, N.G., 2014. Essentials of economics. Cengage learning.
Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.
Reisman, D., 2013. The Economics of Alfred Marshall (Routledge Revivals). Routledge.
Sloman, J., Norris, K. and Garrett, D., 2013. Principles of economics. Pearson Higher Education
AU.