HI5003 Economics Report: Analysis of FMG Market Structure and Factors

This economics report analyzes the market structure of Fortescue Metals Group (FMG), focusing on its operations within the metals and mining industry. The report identifies FMG as operating within a perfectly competitive market structure, characterized by numerous small firms, identical products, and free market entry and exit. It examines the factors influencing demand, including income and consumer expectations, and supply, such as the number of sellers and technological advancements. The report provides an overview of the Australian mining industry, market leaders, and key determinants affecting product demand and supply, supported by references to relevant sources.

[ Economics]
2019
FMG

Economics 1
Contents
Market structure...............................................................................................................................2
Perfect competition......................................................................................................................2
Market leaders.............................................................................................................................3
Factors that influence demand and supply of products...................................................................3
Two determinants of demand......................................................................................................3
Two determinants of supply........................................................................................................5
References........................................................................................................................................7

Economics 2
Market structure
Market structure is best defined as the organisational and other characteristics of a market. The
structure of the company is decided based of the nature of competition and pricing. Presently,
four types of market structure include perfect competition, imperfect competition, monopoly, and
oligopoly (Karl, Case, Oster and Sharon, 2019). Fortescue metals group producer of ore that falls
under the metals and mining industry. Considering the industry of the company, it has been
found that FMG deals in the perfect competition.
Perfect competition
Perfect competition is the market structure where there is presence of the large number of small
firms that compete against each other in the market. The industry falls under the perfect
competition because the company is dealing that is metals and mining. The perfect competition
is suitable for the company because of the characteristics of the industry which are discussed
below-
Characteristics
 Many companies are performing their operations in the industry of metals and mining of
Australia.
 The products, which are provided by companies in metal and mining industry, are
generally identical (Karl, Case, Oster and Sharon, 2019).
 In Australia, metals and mining industry has free entry as well as exit to the market with
the due permission of the government.

Economics 3
Market leaders
Australia is home to some of the largest as well as most profitable mining companies across the
world that include Barrick Australia Pacific, Rio Tinto, BHP Billiton and many others. The
leaders of the industry include Rio Tinto and BHP Billiton. In the year 2016, Rio Tinto Company
confirmed that it would spend more than USD 330million in order to expand its silver grass iron
ore operations in the area of Western Australia. In addition to this, it has been found that BHP
Billiton is expected to complete USD 200+ million expansion of juts Caval ridge coal mine in
the central QLD. In addition to this, it has been found that there has been USD 370million
invested in the development of different lithium mines in Western Australia in the last few years
(Export.gov, 2019).
Factors that influence demand and supply of products
The products that are offered by the company are influenced by demand and supply determinants
present in the market.
Two determinants of demand
The change in the prices will bring the change in the quantity demanded by the customers. There
are some of the determinants that influence products and services of FMG. These are given
below -
 Income: - The change in the income of the customers will bring the change in the
demand of the products. In the second quarter of 2018, the full-time earning of Australia
averaged A$82,436 a year.

Economics 4
(Source: Living in Australia, 2019)
According to Australian Bureau of Statistics, the median gross the household income was
$1616 a week for 2015-2016 (Fitzsimmons, 2018). Middle income could broadly defined
as the middle 40%-20% above the below the median. The rise in the income of the people
in Australia will make them to bring the rise in sales of company. In addition to this, the
income of people will bring the rise in the quantity demanded by the customers for iron.
This makes FMG Company to produce more goods and to supply more products in order
to meet the growing demands of the customers.
(Source: Cowell, 2018)
 Consumer Expectations- The expectations of the customers bring the changes in the
demand (Cowell, 2018). The metals and mining market is fluctuating due to which the
customers predict the prices. If they find that, the prices of the products are expected to

Economics 5
increase then demand of the iron, metal, gold, and many others vice versa. The customers
of FMG company demand for the products when they find the prices of iron might
fluctuate which will bring rise in demand of products.
Two determinants of supply
 The number of sellers in a market: - The number of buyers has a major effect on total
or the net supply (Johnson, 2017). More sellers in the market lead to rise in the supply of
the products in the market. In the Australian market, there is presence of high number of
metal and mining companies such as Barrick Australia Pacific, Rio Tinto, BHP Billiton,
and many others. Thus, all these players supply their products in the market due to which
the supply of the products increase due to which FMG Company might get affected as the
customer base might shift.
 Technology used in a good’s production: - The improvement technology brings the
decrease production cost and brings the profit that leads to rise in supply. In the
Australian market, the metals as well as mining industry include wide use of technology
for the production. The up-gradation in technology by FMG will reduce the amount that
is spent by them in producing iron due to which the company has the wide scope to attain
profit as it leads to rise in supply.

Economics 6
(Source: Heider, 2017)
The above graph shows the change in the supply curve due to the change in technology and
number of sellers.

Economics 7
References
Cowell, F. (2018) Microeconomics: principles and analysis. Oxford University Press.
Export.gov (2019) Australia – Mining [Online]. Available from: https://www.export.gov/article?
id=Australia-Mining [Accessed on 30th April 2018]
Fitzsimmons, C. (2018) How wealthy are you compared with other Australians? [Online].
Available from: https://www.smh.com.au/money/planning-and-budgeting/how-wealthy-are-you-
compared-with-other-australians-20180410-p4z8s4.html [Accessed on 30th April 2018]
Heider, K.G. (2017) The economic organization.UK: Routledge.
Johnson, H.G. (2017) Macroeconomics and monetary theory. UK: Routledge.
Karl, E., Case, F., Oster, R., and Sharon, E. (2019) Principles Of Microeconomics. New York:
Pearson.
Living in Australia (2019) Average Salary Australia [Online]. Available from:
https://www.livingin-australia.com/salaries-australia/ [Accessed on 30th April 2018]