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# Macro And Micro Economic Analysis

Table of Content

## Introduction

According to the topic the present report is divided in two parts. First part included the analysis of country and for this India has been chosen. In this part GDP, earning yield, price level, currency appreciation or depreciation are evaluated. And the second part explains the analysis of industry, for this retail grocery has been taken. In this market structure, characteristics of demand and its elasticity, features of costs, pricing strategies, structural barriers to entry and entry decision have been explained.

### PART 1

In part 1 country analysis has been done, for this India has been chosen.

#### 1. GDP and TFP

GDP of India

Total Factor Productivity (TFP)
GY = 6.5%
GK = 10%
GL = 2%
SK = 0.4%
SL = 0.6%
TFP = GY - [(SK * GK) +( SL * GL)]
TFP = 6.5 - [(0.4*10)+(0.6*2)]
= 6.5 - [4+ 1.2]
= 1.3%

#### 2. Earnings yield

Earnings price share are the Earnings yield. It is to be calculated for the recent 12 months duration is divided by the current market price per share (Stewart, 2004). This shows the percentage of each dollar which has invested in the stock which was earned by the company.

#### 3. Price level, Inflation rate, Nominal interest rate and Real interest rate

At the time of inflation the price level increases.

Rate of inflation = [CPI(x+1) - CPI(x)]/CPI(x)

CPI - Initial Consumer Price Index

#### 4. Money supply and correlation between money supply, inflation and economic growth

The correlation between money supply and economic growth is positive. If there is rise in money supply then there is also rise in economic growth (Metcalf, 2008). And if there is rise in economic growth then money supply will also increase.

#### 5. Exchange rate, appreciated or depreciated of domestic currency

Exchange rate in 2012
1 USD = 49.46 INR
Exchange rate in 2017
1 USD = 68.12 INR
As per the data, Domestic currency of India has depreciated by 18.66 INR.

### PART 2

For analysis of an industry, here 'Retail grocery' has been taken.

#### 1. Market Structure

The degree of competition nature and the of the market for goods and services are defined as the Market Structure. There are market categorization as Monopolistic market, Competitive market and Oligopoly market. Retail industry comes under oligopolistic market structure. In this structure firms are having large cap of market shares (Dickens and Manning, 2004). Some of the major players in this sector are Bharti Retail, Reliance Retail and Aditya Birla Retail. Market Boundaries states the availability of potential competitor and substitutes. As in long run there is no fixed factor whereas in short run there are both fixed and variable factors present, so the price changes accordingly.

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#### 2. Characteristics and elasticity of Demand

As demand curve represents the price and quantity demanded of an item. There are three characteristics of demand which are as follows:

• The position- The position can be seen where the curve is placed on the graph.
• The slope- The demand curve slope is downward from left top to bottom right.
• The shift- The demand curve shifts when more than one item is to be considered.

The closest substitute means the product which are having similar features and can be used over the other (Dolton, Bondibene and Wadsworth, 2012). For example, tea and coffee, coke and pepsi etc.

Price elasticity of demand for the retail market is generated when the percentage change takes place in quantity demanded is less than that in price.

#### 3. Features of costs, Economies of scale and Pricing strategies

Variable cost:- Variable cost changes according to the per unit production. It varies from number of units produced like raw material cost, labour cost etc (MaCurdy, 2015).
Fixed cost:- Fixed cost do not change according to per unit production. It has to be incurred at any number of production like rent of building.
Importance of Economies of scale:- Economies of scale is important for those firms where large number of units are produce with less or average input cost (Dickens, Riley and Wilkinson, 2015).
Pricing strategies:- Pricing strategy is completely depends upon the company's goals and objectives. Price discrimination is come under micro economic price strategy, in which different prices are offered by identical or largely similar sellers of goods and services (Schmitt, 2013).

#### 4. Structural barriers to entry

Barrier means the obstacle or restriction comes in entry of new firm. It can be removed deliberately by the strategies or artificial barriers. In case of oligopoly and monopoly market it is difficult and too costly for potential rivals to enter because existing firms may maintain their position of dominance (Schmitt, 2013).

#### 5. Entry Decision

Entry decision in oligopolistic market is very difficult because there are already large market share companies existing. So the new entrants are come up with very effective and powerful strategy if they want to survive for long run (Reich, 2015). Otherwise they will have to wind-up in very short span of time, as there are large firms are present with highest market share.

### Conclusion

Through this report it has been concluded that GDP of India is increasing gradually. There is positive relation between price level and inflation. The correlation between money supply and economic growth is positive. The domestic currency of India has depreciated. The market structure of retail sector in India is oligopoly. Demand curve has different characteristics. The features of variable cost and fixed cost have been discussed. Economies to sale and structural barriers to entry has also been

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