ECO1002
Economics
Trimester 2, 2015
Individual Assignment
Individual Assignment
Short Answer Questions– based on Economic Theory
This assignment counts for 20% of your total marks
Due Friday Week 11, 2rd October 2015 by 5pm AEST (Australian Eastern
Standard Time) on the portal under “Assignments
Instructions
• Do this assignment individually.
• You may need to do research of your own as well as reading the articles provided. Marks are awarded for this.
• Address each question directly. You do not need to present answers in essay or report form.
• Make sure you explain your diagrams and answer all parts of each question. You do not need to write a huge amount for each question. The word limit is around 800-1500 words
• Reference your answers if you are using information from another source using in-text referencing and include a reference list at the end of the assignment. You do not need to reference lectures and tutorials.
• 5 marks are awarded for correct use of in text referencing and a reference list at the end of the assignment.
• Please consult “Student Learning Resources” uploaded on Moodle with the assignment for assistance with referencing and plagiarism.
• The assignment will go through Turnitin and any plagiarism will be traced. As a result you can get 0 for your assignment.
• Penalties for plagiarism are serious. Please see p.4 of Student Misconduct Policy for a definition of plagiarism and the consequences:
http://kbs.edu.au/CurrentStudents/SchoolPolicies/InformationforallStudents/St udentMisconductPolicy/tabid/445/Default.aspx
• Doing this assignment will be good preparation for the exam.
• **Please submit your assignment on the portal as a word document (NOT A PDF) and insert any pictures/ diagrams that you draw as pictures into the word document. You can insert pictures by:
o Drawing them in programs like “paint” and pasting it into the document
o Drawing them by hand and scanning them in and then pasting them as a picture into the word document
o DO NOT simply copy pictures of graphs from the internet. You have to draw them yourself
Part 1: Firm Perspective [20 marks]
Read the source below and then answer the following questions.
Source 1:
Woolworths trails Coles on grocery prices: Macquarie analysis shows
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 Woolworths 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.
The analysis suggests Woolworths needs to do more to revive its supermarket business, and quickly.
-Woolworths is rapidly losing share as their strategy takes time to implement,- the report said.
….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: http://www.afr.com/business/retail/woolworths-trails-coles-on-grocery-pricesmacquarie-analysis-shows-20150708-gi7iyz#ixzz3jPN0wEzX
1. What type of market structure do Australian supermarkets like Coles and Woolworths operate in? Justify your answer with reference to some limited research and economic theory. (6 marks)
2. Based on economic theory, what effect would Woolworths decreasing its prices have on its revenues? Why? You may want to draw a diagram to support your answer. (7 marks)
3. In a perfectly competitive market for apples explain would happen in the shortrun to the market and to individual producers if the price for pears went up. Demonstrate your answer using a diagram. With reference to the same diagram show what would happen to the market and individual producers in the long-run. (7 marks)
Part 2: Macroeconomic Perspective [30 marks]
Consider the sources below and answer the following questions:
Source 1:
Spain’s economy
Back on its feet
Growth has returned, but dangers still lurk
Aug 8th 2015 | MADRID | From the print edition
AMID the drama of the past few months over a possible Grexit, it has been easy to overlook that other parts of southern Europe have been recovering…
The Spanish economy has been growing for two years, following the extended double-dip recession in 2008-13 (see chart). The recovery was initially lacklustre [weak] but it picked up in the spring of 2014 and has sparkled particularly this year, with growth of 0.9% in the first quarter (an annualised rate of 3.8%) and 1% in the second quarter. Unemployment remains troublingly high, at 22.5% in June, but has fallen sharply from its peak of 26.3% in early 2013.
The Spanish economy has been benefiting from a general cyclical upturn in the euro area. The sharp fall in energy prices caused by the collapse of the oil price has been acting like a tax cut…Yet Spain has been doing considerably better than the [Eurozone] as a whole, which grew in the first quarter of 2015 by a more sedate 0.4%. Indeed Spain’s recent growth rate is among the highest in the euro area.
For the government, led by Mariano Rajoy, the recovery is a vindication of the reforms it has pursued since taking office in late 2011. Much is made of a shake-up in 2012 of Spain’s labour market… The reforms sought to make it less expensive for employers to dismiss permanent workers by reducing severance payments. Companies were also allowed to opt out of the sectoral agreements and to strike their own bargains with workers.
Other reforms have sought to encourage enterprise. In particular the government has made it easier to start a business, reducing the number of procedures involved from ten to six between 2013 and 2014. It is also striving to unify regulations across Spain’s regions. Corporate-income tax has been lowered this year from 30% to 28%, and will fall to 25% in 2016.
…But Juan José Toribio of the IESE business school in Madrid counters that the source of the recovery has not been structural reforms but rather the adjustments forced upon businesses and workers in coping with the severe recession, in particular through lower wages. He also attaches importance to the clean-up of the banks, which was facilitated by a European bail-out of Spain’s struggling financial sector in the middle of 2012.
It is in any case important to put the Spanish recovery in perspective. It follows a decline of 8% in GDP between its peak in the spring of 2008 and its trough five years later. The economy may now be growing fast, but it is still 4% smaller than seven years ago, a bigger shortfall than that of the euro area as a whole, whose GDP is about 1% below its peak. Despite the decline in unemployment, the jobless rate in Spain is still the second-highest in Europe, exceeded only by Greece’s.
Moreover, the recovery has become over-reliant on domestic demand, especially consumer spending. Although Spanish exporters did well during the second dip of the recession in 2011-13, mitigating the severity of the downturn, net trade has faded as a source of growth despite a strong performance in tourism.
The biggest concern is that the recovery has done little to heal the wounds opened up in the years of crisis. Santiago Fernández Valbuena of Telefónica, one of Spain’s largest companies with a big presence in Latin America, worries about the uneven pattern of the recovery, in which mainly younger temporary workers have had a far tougher time than permanent staff, despite those labour-market reforms…
Source: http://www.economist.com/news/finance-and-economics/21660550-growth-has-returned-dangers-still-lurk-back-its-feet
Source 2: Trading Economics Graphs
Source: http://www.tradingeconomics.com/spain/indicators
Use the above sources and some limited research to answer the following questions.
1. Do you believe Spain is above or below full employment in 2015? Why?
Explain and represent this with reference to an AD/AS model. (8 marks)
2. Based on the article and graphs above what is happening to Aggregate Demand in Spain in 2015? Explain with reference to economic theory and your graph in a).(8 marks)
3. Consider Spain’s most recent unemployment rate (from Source 2 above). If in 2015 the Spanish labour force was 22,353,000, how many people would be unemployed in 2015? (7 marks)
4. How would the decrease in oil prices, taxes and wages in Spain in 2015 described in the article affect the economy’s SAS curve? Explain and demonstrate this effect using an AD/AS model. (7 marks)
**Do not forget to include a reference list for any sources apart from lectures or tutorials. You also need to include in text references. A referencing guide is available on the portal under assessments. Both of these will count for [5 marks]
Total 55 marks