Table of Contents
Part A- Microeconomics.
Part B- Macroeconomics.
The Coles and Woolworths operate in Oligopoly market structure. Both are the supermarkets of Australia and dominate in the market. In oligopolistic market structure little number of large sellers who have the power to decide the prices on the differentiation of the products. Also, there are some barriers to entry in the market because Coles and Woolworths have a significant position in the market. Due to intense competition between both supermarkets, entry of a new firm is difficult (Špička, 2016). The small number of sellers are present in the market therefore each seller will affect the prices and production in the market.
Both supermarkets Coles and Woolworths relate to the Oligopoly market because these are Price Discrimination on basis of different products. As in this type of market, supermarkets can charge different prices from different consumer groups across Australia to attract customers. In the Oligopoly market, few sellers compete with each other and their actions will impact the profits of others then the market. The change in prices by one firm in oligopoly market will affect the revenue or profits of other firms. If one firm either Coles or Woolworth decreases prices, then a customer of another market firm will shift to Coles and increase the revenue. A Price discount war is beneficial for supermarket Woolworths because it helps them in capturing the market share. After all, the customer is willing to buy a product at low prices (Friedman, 2017).
The market structure for the market of vegetables provided by farmers is the perfect competition market. Paul, (2020) state that, in terms of Economics, the market consists of many buyers and sellers dealing with homogeneous products and having free entry and exit of the firm then it will be perfect competition market. According to Source 2, all growers are not happy because farmers are getting out of business due to lower prices of Coles. William Churchill said that due to falling in prices at Coles will create pressure on the rest of the industry. Ausveg’s also concerned about independent retailers, Woolworths or markets to whom farmers supplied vegetables. Due to discounts by Coles, customer shifts at Coles and the rest of industry will disturb. Customer purchases the product from the sellers who provide the product at fewer prices.
The fall in prices will affect negatively to the individual vegetable producer. It will decrease the profit margins of the vegetable producer.
The fall in prices of vegetables due to price war will affect the farmers in the long run because it will lower the profit margin of the farmers than the individual average cost curve (Bauer, 2018). In perfect competition market if producers sell their product at low prices then equilibrium prices decided by demand and supply forces, then it will reduce the profit margins for them at the same cost of production. Due to this some small farmers go backward or may out of business or markets like Coles and Woolworths.
As mentioned in the above graphs and articles, up to 2012 economy of Spain is in the depression phase of the business cycle. Pandey, Patnaik and Shah, (2017) stated that recession is the phase of the general decrease in the economic activities in a particular region. In this phase production and employment of the economy falls. It leads to a decrease in production or GDP of an economy. The aggregate demand curve shifts to the left side which leads to a decrease in prices of goods and services (Johnson, 2017). The business cycle shows the fluctuations in the nation’s GDP or total output produced in an economy. The fall in domestic demand will increase the foreign demand for domestic goods.
According to the given articles and graphs, the business cycle of Spain in 2004 is Boom phase. It is the phase at which the economy produced according to its full capacity. In this phase consumer have high demand, low level of unemployment, increase consumer price or inflation and equity market also flourishes. The equilibrium always set at a point where aggregate demand match with aggregate supply. Various factors such as fall in the unemployment rate affect the aggregate demand and aggregate supply and affect GDP growth of an economy.
According to the mentioned data in the above case, the unemployment rate is 24.47% which means 75.53% population of an economy is employed in some productive activities. Several unemployed labours in Spain’s economy is:
75.53 % of the total labour force is 17353000
So 100% labour force of Spain= 17353000* (100/75.53) = 22974976.83 = 22974977 (approx)
Number of unemployed labours in economy of Spain is = 22974977* (24.47/100) = 5621977 (approx)
During the year 2016, India’s economy is in the expansion or economic recovery phase of Business cycle. Expansion phase refers to the period in which GDP increases for two or more than two consecutive quartiles. According to the estimation of the International Monetary Fund, India is the world’s fastest-growing economy at that period. The expected GDP growth rate from India is at least 7% for several years. This estimation is based on the last few years’ success performances of India. It leads to an increase in employment and equity markets. The real income of the consumers will also increase during this phase. The aggregate demand curve shifts right side due to an increase in real income of customers. The lower energy prices in 2016 refer to a decrease in consumer expenditure on goods and services. According to the World Bank’s annual report, Indian improved its performance in between 2014-2015 with ‘Ease of Doing Business’. During that boom phase of Indian business cycle, consumer inflation is also expected to rise in future.
The decrease in energy costs will affect the various other parts of the economy. The energy products are used in various activities in the economy. Fuel can be used in many activities such as transportation, electricity generation, domestic purpose, etc. The lesser the prices of fuel will also reduce the prices of other goods and services. Due to fewer prices of transportation, prices of various other goods and services also decreases which will increase the disposable income of the consumers. This will also increase the aggregate demand of the market.
The government has to consider the macroeconomic indicator of consumer price inflation and consumer price index. According to Yadav and Joseph, (2018), after major economic growth of the economy, the higher consumer price index will push the economy towards the recession phase because it will reduce the aggregate demand. Reserve bank of India (RBI) used strict and tight monetary policies for stabilizing the money supply and for controlling the inflation in the economy (Varghese et al. 2016). For steady consumer price inflation and to curb the cost- pull inflation, Reserve Bank of India takes action over the supply in the economy.
Bauer, M.J.R., 2018. Principles of microeconomics.
Friedman, L.S., 2017. The microeconomics of public policy analysis. Princeton University Press.
Johnson, H.G., 2017. Macroeconomics and monetary theory. Routledge.
Pandey, R., Patnaik, I. and Shah, A., 2017. Dating business cycles in India. Indian Growth and Development Review.
Paul, U.K., Das, G., Das, M. and Mathur, T., 2020. Small growers’ direct participation in the market and its impact on farm income. Journal of Agribusiness in Developing and Emerging Economies.
Špička, J., 2016. Market concentration and profitability of the grocery retailers in Central Europe. Central European Business Review, 5(3), pp.5-24.
Varghese, M., Guha, S. and Agarwal, A., 2016. SCENARIO OF WOMEN EMPOWERMENT IN 2016: IT’S ROLE IN INDIAN ECONOMY & BUSINESS. The world, 2(11).
Yadav, A.K. and Joseph, J., 2018. Growth and Structural Changes in Indian Economy—An Analysis. In Reflecting on India’s Development (pp. 45-65). Springer, Singapore.
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