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State of Competition In Australia: Economist Perspectives

Aim 

The written assignments included in the assessment for ECON 1401 are aimed at helping you develop your ability to apply particular perspectives and abstract ideas to concrete, real-world situations, and to express yourself in clear, thoughtful prose. The application of abstractions to particular concrete scenarios is one of the most difficult challenges for many undergraduate students, and some students also find it difficult to construct an engaging written narrative that is appropriate for an intellectually-inclined audience. Successfully adopting a particular conceptual frame requires a good understanding of the dimensions, limits, strengths and weaknesses of that frame. This means that preparing your written assignments will also help you to develop indepth knowledge of particular perspectives explored in this course, and to hone your skills in critical analysis.

What to do In your assignment, you will apply the conceptual frame of TWO different economic thinkers to ONE of the following topics:

1. Competition: Competition is an essential element of the capitalist economic system. The invisible hand of the markets is mainly a manifestation of competition, where firms compete to provide goods and services that are demanded by consumers. In recognition of the important role competition plays in creating fair economic outcomes, Australia – and many other countries – have laws and regulatory agencies to explicitly promote and create competition in the markets. In Australia, this regulator is the Australian Competition and Consumer Commission. Using the conceptual frame of your two chosen economists, what you have learned in class, and outside research, analyse the state of competition in Australia today. Would each of your thinkers agree that competition is a good thing? Would they argue for more or less competition? Does your thinker make predictions about competition and its effect on wages? Yes? No? Are the predictions good or bad? Are their policy prescriptions that the thinkers would support or oppose that should be considered in Australia? The specific questions you address will vary by the thinkers you choose.

2. Affordable Housing: House prices have risen substantially relative to incomes in most Australian capital cities over the last decade making affordable housing a key concern among many Australians. There is no consensus over the cause of the increase in prices in Australia. In fact, housing prices throughout most of the world experienced large appreciations over this time period. Although, many markets also experienced major declines before, during, and after the GFC. Governments both local and national play a large role in the housing market. They often have a large influence on where and how much housing is built, which affects the supply of available housing. They also have influence in credit markets that determines the availability of mortgages, which affects the demand for housing. Using the conceptual frame of your two chosen economists analyse the state of the housing market in Australia and the policies, both in effect and proposed, on the state of housing affordability. Would your chosen economists approve of the large interventions into the market on both the supply and the demand side? What policies, if any, would your chosen economists want to see enacted to alleviate the problem? Do your economists agree or disagree? The specific questions you address will vary by the thinkers you choose.

The first task of the assignment is to decide which of the above topics you would like to analyse. The second task is to select TWO economic thinkers we have studied in the course to serve as the frames of reference for your analysis of the issue. A complete list of economists is provided at the end of this document. To select your two economists, visit the Moodle site and sign up using the “Select a Thinker – Written Assignment 2” link under Course Assessments and General Resources. There are two separate links, one for each thinker. Please sign up for one thinker using each link. Only 22 students will be allowed to adopt each economic thinker. You may not choose the same economic thinker chosen for your first assignment.

The paper is a compare and contrast essay, where the views of both economists are analysed and evaluated. The best way to start this type of essay is to create an independent list of each economist’s views on the topic and then to look for similarities and differences in their views. Once the key similarities and differences are found, a narrative can be structured around why the economists agree or disagree about the topic. It is expected that you will conduct some outside research on the topic and on your chosen economic thinkers to supplement the information you have gained from class readings and lectures. Please include a reference list with your paper. The quality of your sources will be a factor in assigning marks.

The essay should be between 5 and 8 pages and should attempt to balance the amount of information presented on each economist’s view. One suitable structure for the paper is to write a separate section for each economist summarizing their views, and then compare and contrast their views in a new section. Another way to structure the essay is to align yourself with one of the thinker’s positions. Argue why your position is correct using the arguments supplied by your thinker and why those who believe the opposite and who are aligned with the other thinker are wrong. But, there are many suitable ways to structure the essay. Try to draw upon what you learned from the first writing assignment to create positions for these now dead economists on these current issues. Do not include detailed background information about your economists’ lives unless it is directly relevant to your argument.

Answer

State of Competition In Australia: Economic Perspectives

Introduction

Competitive pressure is considered necessary to ensure good economic performance. The very concept of competition has been under quite a lot of arguments and variety of opinions in the field of economics. The very concept of competition can be depicted as an important factor in the capitalist economist system (Tsoulfidis 2015). When it comes to Australia, some large markets are highly concentrated but few are way more concentrated compared to other economies. This is the reason why competition nature of Australia needs to be delved deep upon and in this research work, competition status in Australian market has been analyzed with regard to two prominent economists’ opinions and ideologies. In this research work, two economic thinkers i.e. Adam Smith and Alfred Marshall have been chosen in order to focus on the topic of competition. The current state of competition in Australia would be analyzed in this work of research on the basis of the economists’ opinions and arguments advocated by them. 

Economic thinkers and their opinions

Adam Smith

The Scottish economist Adam Smith is considered the pioneer of political economy whose ‘The Wealth of Nations’ is regarded as the very first modern work of economics. According to this renowned economist, from the perspective of principles, markets and trades are good – provided there is competition as well as a regulatory framework which act as preventive measures against selfish greed and rapacity from leading to outcomes that are socially harmful (Burke, Genn-Bash & Haines 2018)

To economists like Adam Smith, the term ‘competition’ meant ‘free competition’ rather than being defined with mathematical precision. Free competition denotes competition not hampered by governmental grants of exclusive privilege and where freedom of trade alongside freedom of entry into occupations is maintained (Tsoulfidis 2015)

The economic thinker had described the opposing but complementary forces of competition and self-interest within the framework of market territory as ‘the invisible hand’ which apparently guides the economy (Booth 2014). While self-interest signifies the motivator of economic activity; competition denotes the regulator of economic activity. Self-interest and competition are considered significant economic forces; and together they form ‘invisible hand’ as proposed by Smith which act as the guiding agent to the resources to their most valued use. 

As per Smith, the term ‘competition’ refers both to the competition amongst buyers with bidding price up when supply is exceeded by demand; and also to the competition of sellers with bidding price down when demand is not greater than supply (O'donnell 2016). On the other hand, the concept of monopoly has been referred to as governmental grants of exclusive privilege which is in sharp contrast to the competition notion (Salvadori & Signorino 2014)

As far as Smith’s references to evils of restraining competition are concerned, those were meant as the corporational exclusive privileges alongside incorporated trade. The economist specifically pinpointed the guild alongside the licensing regulations of European towns in this context (Kurz 2015). Adam Smith never did allude to the various competitors needing to be equal and rather, prioritized the fact that competitors require to be free under a justice system from the sovereign authority. 


Alfred Marshall 

Marshall’s view on the topic of competition can be considered as an eclectic mix of confusions and inconsistencies as the economist is found to be varying in his opinions and arguments throughout the different editions of his work ‘Principles’. In his opinion which is pretty much close to the ideas of classicists, concept of free competition has been described as a broad relationship holding across the market and not something as rigorous (Becker 2017). As per Marshall’s opinion, competition is never assumed as something perfect because perfect competition in itself requires perfect knowledge regarding the state of the market which is an unreasonable assumption in every sense. The economic thinker did use the term ‘monopoly’ but largely referred to the term as denoting a single seller of a commodity (Skousen 2016).

On the other hand, Marshall’s opinion seemed to be to a large extent influenced by mathematical economists where he firmly opined in his work ‘Principles’ (3rd edition)  that the horizontal demand curve for the firm is the prime ruling fact within the economy territory whereas the falling demand curve plays the part of exception (Eatwell 2016). In this regard, it was put forth by the economist that although perfect competition is not quintessential to the economy in its entirety; it is the actual ruling case in the economy. Marshall’s contrary opinion to his earlier one could be found in his famous work ‘Mathematical Appendix’ which is said to be overtly influenced by Cournot. Certain terms like ‘external economies’‘external diseconomies’ were also used by Marshall which showcased his deviations from his early opinions (Eatwell 2016)

Current state of competition in Australia

Reports suggest that in comparison to other nations, Australian markets are not specifically concentrated when it comes to competition. This is more so because only a handful of firms tend to hold a greater market share in Australia which does not necessarily spell greater profit levels (Sandelin, Trautwein & Wundrak 2014)

It is also true that the supermarket sector and the banking sector in Australia are overtly concentrated and multiple policy implementations can be done for ensuring greater competition inclusive of governmental initiatives regarding making it easier for the consumers when it comes to switching between the providers and controlling their respective data. Moreover, in sectors like media, the firms that were in the apex position of the market have recently been disrupted by new, online competitors (Huggins & Izushi, 2015). Other than that, market shares of Australian big firms have not undergone any distinctive changes in the recent years; whereas the firm profitability has not risen much also since the 2000s. 

All these depict that competition is certainly not uniformly strong throughout the national economy in Australia. Business firms tend to obtain relatively high profits in sectors such as supermarkets, mobile phone network, liquor retailing and others where scale economies are strong; or in sectors that are highly regulated i.e. banking, gambling, health insurance etc. High profits are gained in some of the natural-monopoly sectors i.e. electricity distribution and transmission, some of the airports etc. as well where competition is weak on an inherent basis (Micklethwait & Wooldridge 2014).

Analyzing competition in Australia in context of economist’ opinions

While large firms are not unusually dominating in the Australian territory in respect of the national economy size; it is quite apparent that they have no exception large share of Australian output and employment. A major complaint amongst the consumer section is that Australian economy lags behind in adequate competition in majority of the industries. As certain sectors are overly concentrated such as banking, supermarket, petrol retail – having not enough competition is a perennial problem as lack of competition coupled with firm dominance leads to implicit collusion invariably (Schumpeter 2017).

Smith had put forth the idea of free competition which is free from exclusively privileged grants but in Australian economy, lack of competition acts prime.  Lack of competition does hurt the Australian economy but studies reveal that the damage is not as severe as might have been expected (Kurz 2015). Economists are of the opinion that market concentration does not always refer to leading towards higher profits. It is important to understand why the dominance of few firms is talked about, more than the way of their domination.

As Marshall had pointed out that perfect competition is the actual ruling case in the economy, competitive pressure is required at once in the Australian market scenario. In case the concentration is found to have its basis in the market regulations, no greater proportion of more than expected shareholder returns or profits can be observed at large (Skousen 2016). In natural monopoly sectors, super-normal profits can be garnered in terms of the firms’ lesser costs of doing business. 

In context of Smith’s ‘invisible hand’, it is understood that market concentration can be leading to excessive profit-earnings by firms only when the barriers of entry are high either in form of business cost or nature of the business (Schumpeter 2017). As per discussing the notions of the economic thinkers on the issue of competition, it can be put forth that competition regulators should be prioritizing protection of competition alongside ensuring prevention of misusing market power (Burke, Genn-Bash & Haines 2018). Natural-monopoly regulators are required to be toughening regulatory provisions; while the government authorities should be at once seeking to intensify competitive pressure with regard to cutting down on the entry barriers inclusive of those as per imposed and implemented by regulation. 

Conclusion

Conclusion can be drawn from the fact that Australian market scenario is in dire need of competitive pressure for the nation is suffering from lack of competition which has stalled the growth of business sector altogether. While large firms are said to be dominant forces in the market region with regard to pushing up prices and profit margins alongside slowing growth in cases of productivity and wages; smaller firms are cornered and some sort of monopoly rules the market domain to a great extent. The Australian economy requires a much-needed push in terms of focusing on competitive pressure and the push would certainly strengthen the business scenario of the nation in the international front. The economic thinkers’ opinions and ideologies have been taken into serious consideration in this research work for ascertaining the state of competition in Australia. 


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