ASSINGMENT PAUDYAL STUDENT I.D: 129841 LECTURE’S NAME: DESS

                                          ASSINGMENT                                   

                                   ECONOMICS
(ECOM4000)

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CAMPUS:
ADELAIDE

STUDENT NAME: KUSHUM PAUDYAL

STUDENT I.D: 129841

LECTURE’S NAME: DESS PEARSON

SUBJECT CODE: ECOM4000

SUBJECT TITLE: ECONOMICS

ASSESMENT TITLE: INDIVIDUAL ASSINGMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

KAPLAN BUSINESS SCHOOL, ADELAIDE, SOUTH
AUSTRALIA

 

 

 

 

 

 

 

 

 

 

 

 

                                         DECLARATION

                                                   

I
acknowledge that, this assignment is my own work, it has been expressed in my
own words and has not previously been submitted for assessment. The information
I have provided herein is true and correct.

 

 

 

 

 

 

 

 

 

 

                                                              PART A

 

 

1.    What
are economies of scale? In what market types (i.e. perfect competition,
monopoly, oligopoly, monopolistic competition) are economies of scale most
important? Why?

 

According
to Quarcoo, Bonsi, Tackie and Hunter (2017) economies of scale refers to
the concept of cost advantage that is attained when output or production of
a product or service is increased manifolds. The theory
behind economies of scale is the inverse relationship that
exists between quantity produced and the fixed cost
of producing a unit. When
the quantity produced increases, the cost per unit
decreases and this leads to economies of scale (Quarcoo, Bonsi, Tackie and
Hunter 2017).  

                                            

Likewise,
according to Burke, Genn-Bash and Haines (2018) economies of
scale is most important for oligopoly. The reason is, in
a oligopoly the economies of scale can lead to
a drop in average total cost if the competitors are able to
out manoeuvre each other . Such a situation ensures
that the marginal cost is lower than the average total cost over the scope of
production run. An economy of scale is not useful
for monopolistic competition on a longer run and it
is also not useful in perfect competition, as
it does not affect the cost per unit production under these
conditions (Burke, Genn-Bash and Haines 2018).  

 

 

2.    Based
on the article above and some limited research what type of market form you
think the airline industry in Australia was in 2002/03? Support your answer
with reference to theory.

                             

In
the year 2002 -03 the Australian airline
industry was oligopoly (Kain and Webb 2003). Although it was
not a perfect oligopoly because there were small players
like virgin blue, but because virgin blue was not in
a position to challenge Qantas directly and evenly, therefore
the market structure was similar to a near oligopoly. Furthermore, as the
small players were there, the market structure became
oligopoly because the competition was there to ensure
that no single player dictates the market. However,
as virgin blue limited itself to just a few routes as
compared to a full-fledged operation of Qantas.
Therefore, it will be appropriate to state that Australian
airline industry in the years 2002- 03 was
more or less a near oligopoly (Kain and
Webb 2003). 

 

According
to Toshimitsu (2017) the  economic theory explains
the market type by stating that the buyers and sellers in
a competitive market decide the market type. For example, if
there are only a handful of sellers with large market control and lots of
buyers, an oligopoly may result. Likewise, one or two sellers
and substantial number of buyers may create
a duopoly and so on. The Australian airline industry in the year
2002 – 03 was affected by the limited number of sellers or just one dominant
seller and a large number of buyers, thus creating a oligopoly market
type (Toshimitsu 2017). 

 

 

 

 

 

                                              

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                      
  PART B

 

 

1.   
Based on the current data for
France what phase of the business cycle do you think this economy is in? Why?
(Hint: Refer to the macroeconomic indicators)

France at the given time is going
through a trough (depression) phase of business cycle. The main reason the
current business cycle phase is called trough because

·        
Economic
activity is very low and interest rates are even lower (Dekimpe and
Deleersnyder2018).

·        
Individual
income has gone down

·        
National
output has decreased dramatically.

·        
Employment
levels are very low.

·        
Low
consumer demand(Dekimpe and Deleersnyder 2018)

Therefore, these indicators all point
towards a trough phase of business cycle.

 

2.   
Based
on our answer in 1 represent the French economy in 2017 using the AD/AS model.

The graph is
exhibiting the current state of French economy

·        
At
present economic activity of any kind is at its lowest in France.

·        
Likewise,
the gap between outputs (which is difference between actual same potential outputs)
is very high.

·        
In
the graph the AD (aggregate demand) line is located near the left side of the
aggregate supply curve. This indicates an extremely low level of economic activity,
which also means low real GDP located at Y1 position (Mueller 2016).

·        
Furthermore,
even if one or more components of aggregate demand are increased, it will
affect real GDP but there will be negligible impact on price levels in the
economy because there are still unutilised resources in the economy. Therefore,
in the current scenario AD (aggregate demand) may not be able to improve prices
in the French economy (Mueller 2016).

 

3.   
What
factors contribute to economic growth according to the AD/AS model? According
to the article above, what policy should the French government be undertaking
to stimulate economic growth.

                                                                                                                      

Increase in real GDP is the most
important measure of economic growth. According to the AD/AS model factors that
contribute to economic growth are (Dutt2016)

·        
A
rise in national consumption of goods or service

·        
Increase
in investment by public and private entities

·        
Increase
in government spending in building infrastructure(infrastructure development ensures
long term growth)

·        
An
increase in exports from the nation.

·        
Reduced
interest rates.

·        
Increase
in consumer confidence.

·        
Increase
in asset price like house price.

·        
Increase
in real wages.

·        
Improvement
in human capital skills.

·        
Technological
development to raise commerce and trade(Dutt 2016)

 

The
French government must

 

·        
Increase
government spending in building infrastructure

·        
Develop
measures to increase consumer confidence

·        
Focus
on increase in real wages

·        
Focus
on human skills and in re skilling workers

·        
Invest
in technological development that can boost growth by improving avenues of
trade and commerce (Dutt 2016).

 

4.   
 Imagine that instead of his planned reforms to
the labour market, Macron invested in educating workers
to increase their skills and in infrastructure. How would this affect
France’s economy in the long-run?
Demonstrate your answer with a diagram and explain your diagram.

 

If Macron invests in
educating workers to increase their skills and in infrastructure it will increase
the long run aggregate supply (LRAS), which can ensure long run economic growth
(Mankiw 2017). It is necessary that LRAS must increase, otherwise the AD
(aggregate demand) will lead to inflation, something that is very detrimental.

If Macron invests only in labour market,
it will create a short-term improvement in economy and the results will be
short lived. Therefore, it will be wise to invest in infrastructure and up skilling
employees, for a long term economic growth(Mankiw 2017).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

 

Burke, T., Genn-Bash, A. and Haines,
B., 2018. Competition in theory and practice (Vol. 3).
Routledge.

Dekimpe, M.G. and Deleersnyder, B.,
2018. Business cycle research in marketing: a review and research agenda. Journal
of the Academy of Marketing Science, 46(1), pp.31-58.

Dutt, A. K., 2016. Aggregate demand,
aggregate supply and economic growth. International Review of Applied
Economics, 20(3), pp.319-336.

Kain J. and Webb, R., 2003 .Turbulent
Times: Australian Airline Industry Issues 2003
accessed on 10th January 2018.

Mankiw N. G ., 2017. Aggregate Demand
and Aggregate Supply
accessed
on 10th January 2018.

Mueller, R., 2016. The Aggregate
Demand Aggregate Supply (AD-AS) Model accessed
on 10th January 2018.

Quarcoo, F., Bonsi, C., Tackie,
D.N.O., Hill, W.A., Wall, G. and Hunter, G., 2017. Economies of Scale in
Integrated Pest Management in Vegetable and Fruit Production. Professional
Agricultural Workers Journal, 5(1), p.53.

Toshimitsu, T., 2017. On consumer
expectations in a network goods market: The monopoly case. Economics
Bulletin, 37(1), pp.488-493.

 

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