Economics Individual Assignment

 ECOM4000 Economics Individual Assignment


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Economics Individual AssignmentConsider the following three sources.Part A: Microeconomics (20 marks)

Source 1. Macquarie Analysis: Woolworths Trails Coles on Grocery Prices (by Catie Low)

Woolworths is failing to close the gap on Coles when it comes to prices.

A Macquarie Securities analysis reveals the cost of a selection of everyday groceries at Wool worths stores has fallen 1.9 per cent since early March.

However, Coles did even better, posting a 3.1 per cent cost decline for the same period based on the same goods. Seasonal drops in the cost of fruit and vegetables underpinned grocery price falls for both major supermarket chains.

Macquarie estimates Woolworths has lost 1.5 per cent of market share in the past year despite broader market growth of about 7 per cent.

Source 2: Supermarkets Price WarSource:

Fruit and vegetables have just become the latest battleground in the discount war between supermarket giants Coles and Woolworths. Coles’ bid to get a bigger share of Australia’s grocery market kicked off today with a flurry of ads spruiking discounts on fresh produce.

The latest round of cuts comes on top of Coles and Woolworths scrambling to undercut each other on items such as bread and milk. But while lower prices may be good news for consumers, farmers’ groups are renewing warnings that the price war risks driving growers out of business. Not all growers are happy. They say the supermarket price wars are making it tough for them to stay in business. William Churchill, spokesman for peak body Ausveg, says dropping prices at Coles places pressure on the rest of the industry.

“Ausveg’s main concern is, are these discounts for Coles growers sustainable? And what’s this going to do to the rest of the industry as growers and farmers who supply to independent retailers, Woolworths, or even just the markets, start to see their sales volumes through those outlets dry up as people start to shift to Coles for these prices,” he said.

“We’re seeing some substantial heartache happening in the milk industry, we’re seeing growers producing milk for less money and they’re having to work more for that,” he said.

Source 3: Supporting Diagrams

Question 1

What type of market structure do Coles and Woolworths operate in? Justify your answer with reference to some limited research and the appropriate economic theories. Your answer should include a diagram. (5 marks)

Question 2

Based on your answer to Question 1, and with reference to the appropriate economic theories, discuss the effects of pricing in this market, especially in regards to revenues. Is it in the interests of Woolworths and Coles to have a price discount war? Why or why not? (6 marks)

Question 3

What type of market structure is the market for vegetables provided by farmers? Explain why with reference to Sources 2 and 3 and the appropriate economic theories. (4 marks)

Question 4

How would falling prices for vegetable products due to the price war affect the individual vegetable producer? Demonstrate your answer with reference to a diagram showing only an individual farmer’s cost curves. Would small farmers be forced to leave the market in the long-run? Why or why not? (5 marks)

Consider the following two sources on the Spanish economy.Part B: Macroeconomics (40 marks)

Source 1: Spanish Growth Quickens, Says Central Bank

Bank of Spain Raises Its Economic Forecasts for This Year and Next

By David Román Updated July 23, 2014 8:06 a.m. ET

MADRID—Spain’s economy grew at its fastest pace in six years during the second quarter, in contrast to the rest of the euro zone where growth appears to have stalled.

The Bank of Spain said Wednesday that Spanish gross domestic product likely expanded 0.5% in the second quarter, compared with the first, up from 0.4% growth recorded in the first quarter. The growth figure is the first official estimate for the three months from April to June.

Economists say this level of growth is likely to make Spain the best or one of the best economic performers in the euro zone in the quarter, largely due to a series of effective economic reforms and because of a rebound effect after a long economic slump.

Jennifer McKeown, an economist at Capital Economics, said that a higher contribution to Spanish growth from domestic consumption in recent quarters, after years in which companies and households have focused on paying back debt, may not be enough to sustain current expansion rates.

“Given sky-high unemployment with an unemployment rate of 24.47%, the risk of deflation and the fact that public and private-sector deleveraging has further to run, a recovery led by domestic spending seems unsustainable,” Ms McKeown said. “While Spain is set to be one of the euro-zone’s best performers this year, with GDP rising by 1% or a bit more, the recovery could yet prove to be short-lived.”

The Bank of Spain said a gradual recovery in domestic consumption led to a faster-than-anticipated economic rebound. It added that it now anticipates that Spain’s economy will grow 1.3% in 2014 and 2% in 2015, slightly above earlier projections of 1.2% and 1.7%, respectively.

Spain exited a two-year recession in the second half of last year, and has since been one of the strongest-performing euro-zone economies, buoyed in particular by soaring exports.


Source 2: Trading Economics Graphs

Use the above sources and some limited research to answer the following questions.Source:

Question 1

Based on the article and graphs above, what phase of the business cycle do you believe Spain was in during 2013? Explain why with reference to theory and represent this phase of the business cycle using an aggregate demand and supply model. (5 marks)

Question 2

Based on the article and graphs above, what phase of the business cycle do you think Spain has entered in 2014? Why? Use your aggregate demand and supply model from Question 1 to demonstrate what happened to the economy in 2014. (8 marks)

Question 3

Given Spain’s most recent unemployment rate, if 17,353,000 people were currently employed how many people would be unemployed? (7 marks)

Consider the following two sources on the Indian economy.

Source 1: India still fastest-growing economy in world gripped by uncertainty

NEW DELHI: The International Monetary Fund (IMF) retained India’s GDP forecast for this fiscal year and the next, confirming its status as the world’s fastest-growing major economy, as it pared global expansion estimates citing weakening worldwide recovery amid increasing financial turbulence.

India’s growth in FY17 and FY18 was pegged at 7.5% in the World Economic Outlook (WEO), the Fund’s flagship publication, unchanged from January.

“Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes,” WEO said. “With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth,” it said of India, in contrast to the gloomy outlook for rest of the world. The global economy is expected to grow 3.2% in 2016, only marginally ahead of 3.1% in 2015 and down 0.2 percentage point from the 3.4% forecast in January.

“Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” said IMF economic counsellor Maurice Obstfeld, calling for an “immediate, proactive response” in a statement.

INDIA STABLE IMF’s long-range forecast sees India growing at 7.8% in FY22, well ahead of others and still the most rapidly accelerating major economy. “Sustaining strong growth over the medium term will require labour market reforms and dismantling of infrastructure bottlenecks, especially in the power sector,” it said.

Lower commodity prices, a range of supply side steps, and a relatively tight monetary policy have yielded a faster-than-expected slowing of inflation, the IMF said, creating room for rate cuts. However, it cautioned that the “upside risks to inflation” could require tightening of monetary policy. The Reserve Bank of India cut the key rate by 0.25 percentage point last week,

India should achieve its 5% consumer inflation target in the first half of 2017, the IMF said, while flagging poor monsoons and the pay commission wage award as risks. To be sure, the India Meteorological Department forecast an above-normal monsoon this year on Tuesday. The IMF also called for continued fiscal consolidation through revenue reforms and reductions in subsidies.

Source 2:


Question 1

Based on the article above, what phase of the business cycle is the Indian economy experiencing in 2016? Justify your answer with reference to economics theory and support your analysis with a graph showing where the Indian economy is operating. (8 marks)

Question 2

How would the falling energy costs affect the Indian economy in 2016? Why? Show this effect in your graph from Question 1. (5 marks)

Question 3

What macroeconomic indicator should be monitored closely in India in 2016? What can the Reserve bank of India do to control this indicator? (You may need to do some research into Topics 10 and 11 by yourself) (7 marks)

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