Microeconomic Theory and News Article Project Report

This project is a microeconomics analysis report based on news articles, focusing on the application of microeconomic theory to real-world scenarios. The report begins with an abstract and introduction, followed by a literature review that compares and contrasts the opinions presented in the selected news articles. The core of the project lies in its analysis section, where the student applies microeconomic concepts such as monopoly, oligopoly, supply and demand, and producer/consumer surplus to explain the economic phenomena discussed in the articles. The project also includes a conclusion summarizing the findings and a reference list in APA format. The report examines market structures, pricing mechanisms, and the distribution of economic surplus, demonstrating a solid understanding of microeconomic principles. The student uses course content and economic vocabulary to convert the article language into economic terms, demonstrating a strong grasp of the subject matter.

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Course ID

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Abstract
This pertains to discuss the concepts of microeconomic theory by discussing the news
articles. In the report, three news articles have been taken and reviewed. The key
microeconomic concepts that can be understood from the news articles are monopoly,
demand and supply, producer and consumer surplus. The critical analysis of the articles has
also been done and how the microeconomic concepts mentioned above influence and lead to
the economic conditions discussed in the articles.

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Table of Contents
Introduction................................................................................................................................3
Literature Review.......................................................................................................................3
Analysis......................................................................................................................................5
Conclusion..................................................................................................................................6
Reference....................................................................................................................................7

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Introduction
The theory of microeconomics has huge influence on the overall economy of the
world. All the market mechanisms can be described with the help of microeconomic
concepts. In this report, news articles that discusses about microeconomic concepts such as
demand and supply, price elasticity and monopoly have been considered and discussion have
been based on them (Varian, 2014). Following the discussion, the report analyses the topic of
the articles with microeconomic theory explanation. The news articles that are discussed in
the following paragraphs speaks about the monopoly market in the United States,
manipulation of oil prices by the OPEC and possibility of rise in coffee prices. The analyses
of the articles are done to discuss different microeconomic theory that explains the
functioning of the economy.
Literature Review
According to an article published in Forbes, the Unites States has become an economy
where the market has been acting like monopoly even when the firms are not monopoly
firms. This has happened due the market dominance that the firms earned by catering to the
large market share. Hence, the writer of the article states, “A large and growing part of our
economy is owned by a handful of companies” (Forbes.com, 2019). It is argued in the article
that the dominance is so intense that the companies have no urge or incentive to perform
better. The companies are operating just to make more money. The firms operating are not
natural monopoly firms in most cases. Only three companies control the 80 percent of the
mobile telecoms and 95 percent of credit card market share is in the control of only three
companies. The existence of such market phenomenon has put the wage rate and productivity
low for long time now (Mishel, Gould & Bivens 2015). Thus, the unintended but existing
form of monopoly structure should be ended to improve the economy.

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Another news article that was published in the New York Times has discussed about
the decision of production cut to keep the prices of oil up in response to the lowering demand
for the oil produced by the OPEC nations. The cut in the oil production by the OPEC
countries is equivalent to the 1 percent of global consumption of oil (Nytimes.com, 2019).
The fall in oil production has somewhat successful to keep the prices steady and increasing.
Owing to this cut in oil production, the oil market has been suffering globally and thus trying
to influence the countries like Russian and Saudi Arabia to increase their production,
however, this could have resulted in decline in oil prices, which the OPEC countries are not
interested in (Weedon, 2017). Thus, the countries keep the production low and might keep it
doing until the end of 2020. Apart from this demand problem the OPEC countries are worried
about the future demand as the climate change is posing a different type of thereat to the oil
demand in the world.
The coffee price might go up in 2019, argued by an article published in Fortune. In
the article, it is discussed that the price of coffee beans would fall, thus it will beneficial for
the companies that sell coffee. However, the fall in the coffee price would decrease the
amount of profit of the farmers that they make by selling coffee beans. Therefore, it will be
less beneficial for the farmers to produce coffee beans. The prices of coffee beans for the
farmers in 2018 fell lower than the price in 2006 (Fortune, 2019). This caused due to the
continuous increase in the coffee supplies over the years. However, the rise in the supply of
coffee that resulted in the fall in price of the coffee benefitted the consumers at the cost of the
producers. The disparity in the distribution of economic surplus between the consumer and
producer required to be mitigated (Weiss, 2014). The effect of this market phenomenon has
strongest influence over Brazil. According to an estimation given in the article, in order to
sustain the price of coffee in favour of the farmers, the coffee output should decline from 63.4
million bags to 55 million bags in Brazil.

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Analysis
The articles discussed in the literature review have spoken about various problems
based on the microeconomic concept. The first article in the literature review provides the
notion of monopoly market. In monopoly market structure, there is only one seller with
unlimited number buyers. Therefore, in this market structure the sellers have the complete
control over the market, can alter price at its wish and can earn super normal profit (Hu &
Yan, 2014). However, the firms about which the article discusses are not only firm in the
market and thus not a monopoly firm but the market share of the firms are so high that it
enjoys monopoly firm like power. Three firms capturing over 90 percent of the market share
indicates that there could be possibility of existence of oligopoly with collusion (Colombo,
2016). In an oligopoly market, there is less number of firms and in many cases below five.
Now, if these firms collude and act as a single firm to minimize competition and maximize
profit then the market might function as a monopoly market.
In the second article discussed in the literature review it can be found that how firm or
companies influence prices by altering the output. The fall in demand of oil globally pushes
the price for oil low, therefore, to keep the prices up at a stable level where the oil producing
companies can operate and sustain has reduced the output. The fall in production will reduce
the supply of oil in the global oil market and thus it pushes the price up and thus the oil price
remains at stable rate (Knittel & Pindyck, 2016). The mechanism of this change in price due
to change in supply can be understood with the help of the diagram given below. In the
figure, the effect of reduction in oil production shifted the supply curve to leftward from S to
S1 as quantity reduces from Q to Q1 and as a result the price go up from P to P1.
The last article in the literature review discusses about how low price for long term
might harm the interest of the producers and benefit the consumers. Low price of a product
increase the consumer surplus and lower the surplus of the producer. Hence, in this case an

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uneven distribution of resources has been occurring which makes the economy inefficient in
nature and thus it should be solved such that any repercussions from the producers end can be
avoided.
Figure 1: Fall in supply and
rise in price
Source: (Created by the Author)
Conclusion
The discussion made above leads to the inference that the economy features different
type of characters in different areas and among those that occurs in the market depicts the
notion of microeconomic theory. The articles that are discussed in the report focus on the
microeconomic concepts of demand and supply, monopoly and oligopoly market structure
and producer and consumer surplus. From the analysis of the articles, it is found that even
when firms are not in monopoly structure can gain monopoly over the market. On the other
hand, the producers can influence the price of a product by changing the output volume.
Hence, microeconomic theory plays vital role in the market of an economy.

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Reference
Colombo, S. (2016). Mixed oligopolies and collusion. Journal of Economics, 118(2), 167-
184.
Forbes.com. (2019). America Has A Monopoly Problem. Retrieved from
https://www.forbes.com/sites/johnmauldin/2019/04/11/america-has-a-monopoly-
problem/#70f8eff32972
Fortune. (2019). Why Your Morning Coffee Might Cost More in 2019. Retrieved from
https://fortune.com/2018/12/29/price-of-coffee-beans-2019/
Hu, D., & Yan, J. D. (2014). Profit Allocation and Realization in Regional Technology
Transfer Alliance Based on Game Theory. In Advanced Materials Research (Vol.
834, pp. 2011-2016). Trans Tech Publications.
Knittel, C. R., & Pindyck, R. S. (2016). The simple economics of commodity price
speculation. American Economic Journal: Macroeconomics, 8(2), 85-110.
Mishel, L., Gould, E., & Bivens, J. (2015). Wage stagnation in nine charts. Economic Policy
Institute, 6, 2-13.
Nytimes.com. (2019). OPEC to Keep Propping Up Oil Prices by Extending Production Cuts
Into ’20. Retrieved from https://www.nytimes.com/2019/07/01/business/opec-oil-
prices-output.html?rref=collection%2Ftimestopic%2FGasoline%20Prices
Varian, H. R. (2014). Intermediate microeconomics with calculus: a modern approach. WW
Norton & Company.
Weedon, A. (2017). Victorian Publishing: The Economics of Book Production for a Mass
Market 1836-1916. Routledge.

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Weiss, O. (2014). Economic surplus and capitalist diversity. Capital & Class, 38(1), 157-170.