Macroeconomic Analysis Essay
The idea Edgar has for opening up four new gas stations is based on a well based argument making it viable as a profitable business venture. The evaluation on the American consumer to accept the high price for gas oil prices forms the first approach towards establishing a business. Gasoil businesses in the world run as cartel where it supply and prices are determined by the few stakeholders in the industry. The stakeholders form an agreement among their competitors on the price, making and, marketing of the product (Fredy, 2010). The cartel though the production affects the GDP growth rate. Gross domestic product represents the monetary value of the goods produced in the country within a year. The enterprise runs as an oligopoly. An oligopoly represents a business type where there are few sellers in the market. The few sellers are due to the restriction imposed on entry to a monopoly.
The production rights are restricted by the producer and the producer also controls the prices of the commodity (Brake, 2011). Unemployment will be apparent as the restriction holds down people with the relevant skills to join in the trade. Price control is done through price fixing and determining the market share. The market shares will go a long way to influencing international trade. International trade represents trade past the nation boundaries (Derik, 2010) . The main purpose of a cartel is profit increment to the individual by reducing competition. Edgar by starting up the gas oil business will gain profit margin from the monopoly. The government is also be involved in the control of the production rights of such a cartel. It is through fiscal policies that the government will regulate such ventures with an aim to protect the public from exploitation. Fiscal policies tools are the government imposition on tax and revenue collections (Tayor, 2007).
The focus on the convenience good and assumption it will make a profit in the society is the reason Edgar insists on the production. Convenience goods are those that are distributed widely and are inexpensive and the gas oil forms one of them (Fredy, 2010). Macroeconomic covers the demographic aspect, as these goods are made available to the population. Demography represents human residents statically (Henry, 2008). Startup capital is a needed by Edgar as he plans to buy the four gas oil station. The fund borrowed from a financial institution will be affected by the interest rate and the financial policies. The monetary policy is a tool used to control the supply of money in the society through affecting the interest rate in the society (Tayor, 2007).The estimates of sales to increase in china and India represents the trade cycles.
Business cycles are periodic change in the production and affect the Gross Domestic Product of a country. They cause the GDP to fluctuate and thus an expansion and contraction of the level of economic activities in the country (Tayor, 2007). The business sets itself on time of favorable economic benefits as the bank rates are favoring a business positively. Edgar requires a large capital base to start a business and borrowing from a business organization is paramount. Interest is payable on the loan capital that is taking from such institutions. With a low lending rate, the business organizations enable economic growth as a society can borrow a large sum of money for the investment project. Investment improves the living standard of the society as they earn a profit from the investments.
The advice to Edgar is to take up the positive strengthening economy and invest during the low lending rate (Sydney, 2010). Demand is as the amount of a commodity that consumers are willing and can purchase at any given price over a given time (Tayor, 2007). The law states that, at low prices, the need is high. The firm being an oligopoly has rigidity in its price of the gas oil. Rigidity represents stickiness in the prices that does not change regularly. Edgar will enjoy the high prices of the oligopoly market as the American consumer has accepted the prices. The high prices are as due to the kinked demand curve as oligopoly market has two demand curves. A highly elastic demand curve on the price increase and a highly inelastic in the price decrease (Tayor, 2007).
The elastic part of the curve is the dd curve thus an increase in price will lead to a rise in demand for the gas oil. A similar case to the market, if China and India increase their market the prices will also increase. A profit in the oil industry enjoys in the point where MR marginal revenue curve cuts the MC marginal cost curve. At this point, marginal revenue is equates the marginal cost and the profit is at maximum (Tayor, 2007).
The supply also affects the oil industry, and it is the amount a producer is willing and can sell at a given price in a given time (Derik, 2010). In the supply of the gas oil collusion remains evident to increase market share. Competitors are on the evaluation as they affect the price and profits in the other firm. If one firm drops price the other firm is forced to drop its prices to in order to increase profit. The firms in the oligopoly structures have adopted non-price completion eliminating the pricing war among them. It has enabled international trading as they enjoy the collusion and similar prices and the control from one area.
The interest rates within the country will also affect the enterprise. With business policies controlling the levels of interest rate in the area, the business is at a position to borrow funds for expansion with low interest rates on the returns. The central’s bank adversely controls the monitory policy by regulating the lending rates. The government through the fiscal policies regulation protects the survival of the oligopoly. The oligopoly market maintains barrier to entry through the production of large scale adversely improving the Gross Domestic Product within the country as the quantity of well produced increases.
Recommendations and Economic Justification
The GDP is one of the major issues in macroeconomic through the collusion of demand and supply in the country the GDP is maintained as the business operates in its equilibrium point (Brake, 2011). Unemployment forms a major challenge but with a low interest rate from the financial sector business can operate and start up in the country. The case example is Edgar if he opens the four stations employment will increase. Demographics is affecting by supply and demand as they affect the chances of improving the living standards of the population. The salaries from the oil industry will maintain the demand and supply of the oil. The interest rate in the country determines monetary policy. Edgar before starting a business should consider this during the start up to maintain profits as he aims to supply the gas oil.
Brake, R. (2011). World Monopolies. Summertime Publishers.
Derik, K. (2010). International Trading. Kansas Publisher.
Fredy, T. (2010). World Businesses. Milestone Publishers.
Henry, J. (2008). World Demography. Wimtertime Publishers.
Sydney, G. (2010). Money and Banking. Westminister Publishers. Tayor, W. (2007). Introduction to Economics. Riverside Publishers.