Question 1

Price elasticity of Demand in economic terms for any good refers to the level of change in the
demand for a particular good with consequent changes in the price of the product. When the
price of a product changes due to various circumstances, the demand for the product also
changes in case of normal goods (Sills, 2018). As the price increases, the demand reduces and
vice versa happens in case of a fall in the price of the product. A number of factors however
determine the relationships and the value of the price elasticity of demand of a product (Karlan
and Zinman, 2018). However, in the practical world, a number of products have inelastic demand
and the change in prices do not affect the demand of the product at the global level and the cases
that have been reported pertaining to such products are studied in the subsequent parts of the
study.

There are a few events that occurred in the past few years that help in understanding the practical
applicability of the concept of price elasticity of demand. It is in fact one of the most widely
observed phenomenon in the global economy. A number of factors like globalization, price
changes due to inflation and other factors like trade agreements have affected the elasticity of
demand of a number of goods. Some of these goods are used on an everyday basis and others are
considered to be luxury goods. The deficit and surplus forces of certain goods have also cropped
up in the past few years which point out the occurrence of the phenomenon of changing prices
depending upon the demand of goods in a pragmatic world.

One of the goods that has been undergoing fluctuations in demand along with fluctuations in
prices is sugar. It has been reported in most studies and articles that the price as well as the
demand of sugar has been fluctuating due to various reasons including emergence of situations of
surplus. However, in one of the articles published in the year 2017, it has been reported that the
supply and demand of the good has become more balanced and stabilized leading to stable
prices.

This article states that the prices of sugar have not increased but have remained comparatively
constant even though there have been surpluses in the level of supply of sugar. Most of the
Brazilian firms have directed the use of cane to the processing of sugar and not ethanol as the
prices of sugar have remained constant despite the pace of the demand for the good remaining
slow or stagnant. The firms are choosing to use cane for sugar production instead of ethanol
production as the prices differ. As soon as the prices of the two goods become similar, the
production of ethanol will increase and that of sugar will reduce (U.S., 2019). This portrays that
the price of the good in this case is inelastic. As with change in the prices of the good, the
demand or the prices of the good do not change much, it is inelastic up to a large extent. It is the
change in demand for the good with change in prices that determines the level of price elasticity
of the product and so in this case, the good is price inelastic.

Another product that has undergone a lot of fluctuations in terms of the change includes the
change in the demand and supply of Apple iPhones. The firm with one of the world’s highest
levels of brand value has been undergoing some serious issues related to the selling of its
products such that the lack of innovative technology in the goods manufactured and marketed in
the last few years has caused the level of sales to come down slightly (Forbes, 2019). The firm
has always been reported to be more dependent on the brand value than on the innovation levels
in the last few years. As the prices of the new phones launched has increased as compared to the
phones with the same technology that were produced before, the demand for the products from
the same customer cohort has reduced substantially. However, a new group of customers have
taken up the place of the old and loyal customers such that the total demand of the products have
either increased or remained constant. Thus, if one considers the customer cohort that is loyal,
then the product is slightly price inelastic. However, when the entire customer demand is
considered on a global basis, the demand for this product is highly inelastic.

Another very common good, that has been going through fluctuations in terms of the demand
and the supply levels in the global market and industry. Chocolate is a good that has always been
known for high levels of demand and the production levels have also been high in order to cater
to the existing levels of demand such that a balance is maintained in the market globally (MNN -
Mother Nature Network, 2019). However, reports conducted and articles published in the year
2018, assert that the level of demand has increased excessively for the product such that the level
of demand has outstripped the level of supply in most regions around the globe. The level of
spending on this good has however been increasing incessantly. With the increase in the prices
triggered by increasing demand, and the low levels of supply, the number of people consuming
this product has decreased. The decrease in the number of people consuming the product has also
decreased up to some extent because of the health consciousness of the global population.
However, again, on the whole, the demand from the loyal customers of the product has kept the
levels of demand constant on the whole. This proves that the demand of the product has also
been price inelastic globally in spite of the fluctuations that the trends have been undergoing in
the global market.

Thus, in order to conclude, it can be asserted that the demand for most goods in the past few
years globally has been inelastic on account of different factors. Even though the demand and
supply of the goods have undergone fluctuations, the net demands for any of the goods has
remained the same or have increased. This can be attributed to the increase in the levels of
globalization as well as the rise in the level of income for the individuals all over the world.

Question 2

Monopoly is one of the most important phenomenon that is observed in the field of economics
that is subjected to the microeconomics study of the .different types of market structures that
prevail in the pragmatic world. It is a type of market structure that is highly differentiated from
the market structure of perfect competition (Merhav, 2017). In this type of a market structure, the
market is characterized by only one seller or manufacturer such that he is the sole producer of the
good and caters for the entire demand existing in the market and faces no amount of competition
from other producers or firms in the market (Hawley, 2015). This is possible for the
manufacturer as the good produced by the manufacturer is completely differentiated and has no
partial or complete substitutes. There are a number of procedures that allow the manufacturer to
be the sole seller of the goods including licenses of the government, ownership of the specific
resources and the availability of patents as well as high financial capital that allows for the firm
to jumpstart in the market (Zeuthen, 2018). It is the characteristics of the product and the
consumers in the market that make the seller the only person liable for setting prices of the
product. Generally, the consumers continue to buy the product irrespective of the changes in the
price of the product as there are no substitutes of the product. Thus, the demand for the product is
generally inelastic and the seller is the price setter of the product.

The Australian economy is slowly and gradually undergoing globalization and the level of
monopolistic power exercised by the industries vary. Some of the industries like the coal and
mining industry, the banking industry and the industry for some of the retail chains are reported
to be characterized by monopolistic power (NewsComAu, 2019). One of the firms in this region
that has been exercising substantial levels of monopolistic power include Coles Supermarkets
Australia Pty Ltd, that generally trades with the name Coles. This firm has one of the largest
super market chains and deals with retail and consumer services. It is headquartered in
Melbourne and is an integral part of the Coles group. It also provides online and delivery
services of the goods that it sells across the entire region of Australia. It is reported to have
earned maximum amounts of monopolistic power by providing the consumers with maximum
amount of fresh and high quality food products. Although, substantial competition is faced by the
firm from the competitor, Woolworths, the firm owns 80% of the total market share along with
Woolworths.

The organization has been reported to have gained advantages for exercising monopolistic power
in terms of higher bargaining power when it comes to the suppliers as well as the consumers.
They have able to use their market power in a large number of ways including extravagant
profits because of the setting of high prices and reduced levels of innovation along with higher
sales unlike most other new entrants in the market (The Conversation, 2019). They have also
been able to market its products and services at lower or reduced costs. The high brand value of
the firm has enabled it to attract a large cohort of customers with very little efforts and
expenditure or cost incurrence.

However, it is also reported that the presence of such monopolistic has also proven to be
negative resulting in adverse impacts on the consumers and the other firms trying to operate in
the same market (SmartCompany, 2019). The consumers are made to pay higher levels of prices
for the quality which they could have attained at lower prices. As a matter of fact, the prices of
the products are higher than the global level of prices. This not only causes resentment among
the customers but also causes loss to the foreign firms that are trying to invest and operate within
the market that exists in the Australian vicinity. This impact, in the long run can also cause the
trade relations of Australia with the other countries that have invested in this market or industry
to get hampered.

As the firm exercises monopoly in the retail market along with the competitor, it can also lead to
decisions or strategies that the firm takes being not adhered to the rules of competition (SBS
News, 2019). This in turn can cause the firm to induce the suppliers to unduly carry out harsh
bargaining with the suppliers reducing the incentives of the suppliers to supply in a healthy and
motivated manner to the firm.

The intervention by the government of the economy or the state is one of the most effective
policies and steps that can be taken up and implemented in an economy so as to ensure that the
monopolistic power of the firm is reduced and the power of the firm is kept checked in the long
run. It will also help in regulating the prices so that the foreign firm are able to invest in this
market and hence the trade relations of the country with the other countries is bettered. Policies
in the form of price ceiling. Price ceiling helps in setting the prices of the goods at a certain level
such that the firm will not be able to increase the prices of the products it sells beyond a certain
level. This level will be monitored and set by the government. Other steps taken by the
government can include increasing the level of taxes levied on the firm for different income
levels or revenue generation levels reported by the firm. Another effective policy would include
the provision of subsidies provided to the competing firms in the market. All of these steps of
intervention by the government will help in reducing the negative impacts of the monopolistic
power exercised by the firm.
References:

Forbes.com. (2019). Apple Struggles With Demand For Dull Devices. [online] Available at:
https://www.forbes.com/sites/jonmarkman/2018/12/29/apple-struggles-with-demand-for-dull-
devices/#7f3690365bb3 [Accessed 9 May 2019].

Hawley, E.W., 2015. The New Deal and the problem of monopoly. Princeton University Press.

Karlan, D. and Zinman, J., 2018. Price and control elasticities of demand for savings. Journal of
Development Economics, 130, pp.145-159.

Merhav, M., 2017. Technological dependence, monopoly, and growth. Elsevier.

MNN - Mother Nature Network. (2019). Our chocolate supply is getting squeezed. [online]
Available at: https://www.mnn.com/money/sustainable-business-practices/stories/chocolate-
supply-shrinking-cocao-trees [Accessed 9 May 2019].

NewsComAu. (2019). Sometimes even shopping around won’t help. [online] Available at:
https://www.news.com.au/finance/business/other-industries/the-companies-that-make-big-
profits-even-when-customers-shop-around/news-story/ce907b48adcf31d5939539c0568d516d
[Accessed 9 May 2019].

SBS News. (2019). Coles, Woolies warned on monopoly. [online] Available at:
https://www.sbs.com.au/news/coles-woolies-warned-on-monopoly [Accessed 9 May 2019].

Sills, J.A., 2018. System of demand modeling and price calculation based on interpolated market
price elasticity functions. U.S. Patent Application 15/721,407.

SmartCompany. (2019). Coles and Woolies: super heroes or bad guys? - SmartCompany.
[online] Available at: https://www.smartcompany.com.au/finance/economy/coles-and-
woolworths-super-heroes-or-bad-guys/ [Accessed 9 May 2019].

The Conversation. (2019). FactCheck: do Coles and Woolies control 80% of the market?.
[online] Available at: https://theconversation.com/factcheck-do-coles-and-woolies-control-80-of-
the-market-15418 [Accessed 9 May 2019].
U.S. (2019). World sugar supply deficit seen fading in 2017/18. [online] Available at:
https://www.reuters.com/article/us-global-sugar/world-sugar-supply-deficit-seen-fading-in-2017-
18-idUSKBN1861XW [Accessed 9 May 2019].

Zeuthen, F., 2018. Problems of monopoly and economic warfare. Routledge.