ECOM4000 Economics Assignment For the Supermarket Industry

Answer:

Coles and Woolworths, being two of the primary supermarkets in Australia, operate in an oligopolistic type of market structure. In general, an oligopoly market is characterised by the presence of many buyers and few sellers, which in turn gives each producer considerable market power and share of the market (Fudenberg and Tirole 2013). The sellers are also price makers and depend on the decisions and strategies of their rivals. In this context. 

Coles and Woolworths also compete in the aspects of price, thereby creating a situation of price war in the oligopolistic market, which can be seen.

2. As the market in which the supermarket giants Coles and Woolworths is that of an oligopoly, there exist two forms in which the firms in this industry can compete with one another- price war or non-price competition. In this market, pricing plays a significant role. When one of the competitors decrease the price levels, it attracts significant customers from other companies, which in turn is expected to increase the revenue of the former and vice-versa (Dunne et al. 2013).

Thus, it can be seen that it is of interest on part of Coles and Woolworths to engage in price war, in the short run as that can lead to increase in the clients and revenues of the company providing products at more affordable prices. However, in the long run, continuous price wars and discounts can lead both the companies to a sub-optimal situation, in terms of lower profitability and inefficiencies (Keith 2012). 

3. The farmers who produce and supply vegetables, in Australia, can be seen to be operating in a competitive form of market as there are many sellers and many buyers in the market and each of the sellers sell mostly homogenous forms of commodities with not much difference from one another. In economic conceptual framework, a perfectly competitive market is characterised by the presence of many buyers and sellers, where both are price takers and where there is free entry and exit in the market (Dunne et al. 2013). The products sold are homogenous and in the long run there is only normal profit. This can be seen to be the case in the market for vegetables provided by the farmers as they sell to big supermarkets as well as many retailers. 

4. The price wars among the supermarket can be seen to be detrimental for the individual vegetable producer, as the same decreases the amount of money which the same receive by selling their products. 

If the price falls below the per unit cost of production of the producer, then the same is expected to incur loss in the short run. This would let to exit of many sellers in the long run.

In the long run, with the exit of some of the sellers, the price is expected to increase till the point where it becomes equal to the minimum point of the AC curve (Frank and Cartwright 2013).

Economy of Spain   

As is evident from the concerned graphs, during 2013, the GDP growth rate of Spain can be seen to be negative along with a vary high unemployment rate and very low consumption expenditure, which in turn indicates to the fact that the economy of Spain was in a deflationary phase of the business cycle.   

Due to less growth in the GDP and high unemployment rate, the purchasing power of population in Spain in 2013 was low which in turn decreased the total consumption expenditure and aggregate demand in the economy (Galí 2015). 

In 2014, the unemployment rate in the economy of Spain can be seen to be decreasing, which in turn has led to an increase in the consumption expenditure, thereby leading to increase in GDP growth rate of the country (Mankiw 2014). This in turn, implies that in 2014, the economy of Spain was entering in a recovery phase of business cycle from a phase of deflation. 

With the increase in employment and consumption expenditure, the aggregate demand can be seen to be increasing, which in turn has led to both price and output levels in the economy in 2014. 

The recent unemployment rate in Spain is 24.47%, which in turn imply that the recent employment rate is 75.53%. This implies that 17,353,000 people belong to this 75.53% of the population who were employed in Spain.

Therefore, in the recent period, 5,621,976.83 or approximately 5,621,977 people in Spain were unemployed.

Economy of India  

The GDP growth rate of economy of India could be seen to be increasing in the 2016, with the predictions of the same being positive for the rest of the year (2016), which in turn shows that the country was experiencing the beginning of the phase of boom in the business cycle 

The Indian economy, in 2016, can be seen to be operating in the phase post recovery and before peak of the boom phase of the business cycle. 

The falling energy costs can be seen to be leading to the fall in the cost of production of different goods and services in the economy of India in 2016, which in turn can be seen to be increasing the real income in the hands of the population of the country (Heijdra 2017). This is turn can be seen to be increasing the demand for goods and services in the country, the effects of which can be seen to be as follows: 

This in turn can be seen to be increasing the growth of the economy of India in the concerned period. 

With the rise in the growth of the economy of India in 2016 and with further expectations of future increase in growth of GDP and private consumption, the level of inflation in India is expected to increase in the country in the coming years. This has to be controlled by the Reserve Bank of India to avert the negative implications of the same (Heijdra 2017). This can be done by the RBI, by implementing contractionary monetary policies like that of increasing the rate of interests or decreasing the prices of the bonds, so as to decrease the money supply in the market (Mankiw 2014). Increasing the rate of interest is expected to lead to a decrease in investment demand, thereby reducing money supply, where as by reducing bond prices RBI can influence people to buy more bonds, thereby reducing money supply in the economy.   

References 

Businessinsider.com.au 2018. The biggest threat from Aldi to Woolworths and Coles is still to come. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/the-biggest-threat-from-aldi-to-woolworths-and-coles-is-still-to-come-2017-5 [Accessed 16 Sep. 2018].

Dunne, T., Klimek, S.D., Roberts, M.J. and Xu, D.Y., 2013. Entry, exit, and the determinants of market structure. The RAND Journal of Economics, 44(3), pp.462-487.

Frank, R. and Cartwright, E., 2013. Microeconomics and behaviour. McGraw Hill.

Fudenberg, D. and Tirole, J., 2013. Dynamic models of oligopoly. Routledge.

Galí, J., 2015. Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press.

Heijdra, B.J., 2017. Foundations of modern macroeconomics. Oxford university press.

Keith, S., 2012. Coles, Woolworths and the local. Locale: The Australasian-Pacific Journal of Regional Food Studies, 2, pp.47-81.

Mankiw, N.G., 2014. Principles of macroeconomics. Cengage Learning.