Sustainable Growth in a Post-Scarcity World: Consumption, Demand, and the Poverty Penalty - Assignment Example

RUNNING HEAD Name: Institution affiliated: Date of submission: Tutor: Part 1 Perfect competitive market structure Woolworth and Cole’s supermarket operate in highly competitive market structure based on the following characteristics of a perfectly competitive market; Large number of buyers and sellers The Australian market is composed of many groceries supermarket though Woolworths and Coles dominate the market. There is also a large number of customers such that no single buyer can influence the prices of the groceries. The prices of the products are neither controlled by Woolworths nor Coles though they dominate the market. These supermarkets sell at prices determined by the market no wonder Woolworth is losing their customers because they have not lowered theirs to match the decline in the prices of the groceries in the market [Gre061]. Homogeneous products Woolworth, and Coles offer the same products; groceries, buyers have no special preference when it comes to buying of groceries. No supermarket is expected to raise the price above the prevailing market price or lower below the current market price. Woolworths is selling their groceries at a price higher than the prevailing market price no wonder Woolworths are losing their market share to Coles [Nic06]. Perfect knowledge Both the supermarkets and their customers have knowledge regarding the conditions of the market. This is the reason customers are opting not to buy from Woolworths as it has not lowered its prices as the prevailing market price. Woolworth has dropped it prices by 1.9 per cent while Coles has dropped its prices by 3.1 per cent. This is implying that the two supermarkets have got the knowledge of the market trend of reducing the prices of the products. According to the research carried out by Macquarie Securities the lowering of the prices of the products emanates from the seasonal drop in fruit and vegetables from the producers [Dav101]. No attachment The products are the same, and the customers would buy from either the supermarkets as the prices ought to be the same. Since the prices are supposed to be the same, the customers are opting to buy from Coles is offering a lower price compared to Woolworth. Question 2. Considering the demand and supply curve when Woolworths lower their prices, demand and supply of groceries increase. According to the economic theory, a decrease in price leads to a consequential increase in demand [Phi10]. An increase in demand leads to an increase in supply as the producer are obligated to increase the production to match the increased demand for equilibrium to be attained. The rise in demand and supply results in higher sales made at a given time. If the price is such, that profit is made the total income increases. Woolworths should lower its selling price to that price prevailing in the market. The results would be that it will regain its market share and avoid losing its customers to its competitors especially its rival Coles. 3. Short run and long run behavior of substitutes in the market In a competitive market, when the prices of pears go up the prices of apples also increases. In the short run, when the prices of pears go up the demand for apples goes up and eventually the prices of the apples will rise. The consumers will demand more of apples than pears to substitute the need for apples. The sellers will increase the prices of apples because despite raising their prices their demand is still high since the price of pears is high. Consumers have no choice but to go for the apples as the apples are becoming unaffordable. There will be lots of pears in the market but the sale made will be low as the prices are high than usual. There will be less of apples as the customers who use to buy pears have now turned to apples. The little amount of apples will now be sold at a higher price as their demand is still high [Rog13]. The producer of pears will experience a loss as the amount of pears needed in the market will be low. They will also be forced to sell their pears at low prices to the sellers in the market. The producers of apples will be at their peak as they can sell more of apples to the market, and they can decide to hike their prices too. The apple producers will also be at pressure to produce enough apples to the market to match the demand. They are not likely to satisfy the growing demand of apples to the market as they take a time to grow and be ready for market. The result is apples being in less supply in the market. In the long run, the situation will change both at the market and to the producers of both types of fruits. The producers of pears will now be producing less of them and, therefore, supplying little to the market. The producers of apples will be supplying plenty of apples in the market creating a surplus of them. Eventually, the prices of apples will now be lower because there will be a tendency of some producers selling them at low prices to avoid wasting them and incurring losses. The supply of pears will be little as producers will not be producing more of them. There will be a change in prices with low prices of apples again, and high prices for pears and the cycle will be reversed. The exponential demand on elasticity on close substitutes shows the graphic effect on changes in prices [Ste021]. Part 2 Question 1 Spain is above full employment From the case discussed the employment of Spain is slightly above full employment. A majority of the people who are able and willing to work are employed both in the government and the private sector. The unemployment as at July 2015 is as low as 22.37 percent. There is a lot of evidence to support the fact that Spain is under full employment. The effects of full employment are inflation. The inflation of Spain is at 0.1 which is high compared to the previous years where it has been below zero percent. With the majority of the population is employed, the purchasing power of consumers is high. Consequently, the demand for goods and services rises. When the demand grows at an alarming rate such that the supply is not able to match the demand, the result is goods and services to be offered at very high prices. High prices for consumer goods lead to inflation. The consumer spending in Spain as at early quarter of the year 2015 was 97.0667 index point. Eventually, the high demand for the products has led to a high production that has shot to 4.5 percent. Question 2 The aggregate demand of Spain in 2015 is increasing. The curve shifts to the right because there is an increase in consumer wealth, leading to high demand and consumption of goods and services. The consumers have a higher income as a majority of them are employed and have got confidence in the future as the economy of Spain is also growing. There is also an increase in the investment especially the private sector which is evident in the sector being able to absorb a lot of the labor force. The government is also playing a part as it is creating an enabling environment for investment by reducing the procedures for starting businesses from ten to six. Question 3 Spain unemployment is relatively high, but the number of the unemployed persons is decreasing with time. There has been a creation of job opportunities in the private sector over the time and by the time the year ends the number of unemployed persons will have reduced considerably. The total labor force is at 22,353,000, and the percentage of the unemployed labor force is at 22.37 percent that is estimated to be .the number of unemployed is expected to decline a below 5.55 million. REFERENCES Gre061: , (Gregory & Mark, 2006, p. 111), Nic06: , (Nicholas & Mark, 2006, p. 354), Dav101: , (David & Ronald, 2010, p. 330), Phi10: , (Phillip, 2010), Rog13: , (Roger, 2013), Ste021: , (Stephen & Dan, 2002), Read More