Economics for Managers: Discussion on Competition, Monopoly, and Flows

This assignment presents answers to several discussion forum questions related to economics for managers. The first question explores the benefits of perfect competition, arguing that buyers are the primary beneficiaries due to efficient resource allocation, lower prices, and consumer surplus. The second question discusses why textbooks recommend using the Yellow Pages or internet for monopolistically competitive markets, highlighting the ease of identifying competitors and the advantages of internet search engines. The third question explains the concept of prices acting as a rationing device, emphasizing how prices balance supply and demand and influence resource allocation and consumer behavior. The fourth question examines the five entities of the circular flow of money, detailing the roles of households, firms, financial sectors, the government, and the overseas sector. The fifth question addresses the definition of a recession and the Australian government's role in leading the economy out of the 1991 recession. The final question explores why a firm might pursue a position of monopoly and how to recognize if a firm is approaching a monopoly, using local government services as an example.

Economics For Managers 1
Economics for Managers
Name
Institution

Economics For Managers 2
Question:
6.3 Are conditions in a perfectly competitive market more favorable for the buyers or the
sellers?
Explain your answer.
Answer:
Perfect competition is a model that can be used for a benchmark against other real-life
market structures. Agriculture is a prime example of a perfect competition. Although due to
market spending money on R&D the market has gained advantages in certain parts of the
world. In my point of view, buyers are the one who has the most benefit from the perfect
competition. The benefit of perfect competition firstly is they allocate the resources in a most
efficient way which means that both productively and efficiently in the long run. Also,
consumers charged at a lower price when they consumed the goods and so consumer also get
the advantage. There is no information failure and all knowledge Is shared equally within
them as they have a perfect knowledge, in addition, less advertising is needed and no barriers
to entry is made so firms that exist cannot derive any of monopoly powers. Another
advantage is that there may be maximum possible of consumer surplus and economic
welfare.Consumer surplus is the situation where the price of consumer pays less than they are
supposed to pay while economic welfare is the total benefit available to society from
economic. In the Australian supermarket industry, a price war is an ongoing example of the
supermarket trying to create perfect competition. Since the arrival of Aldi in Australia, the
strategy of both big supermarkets has changed over the years how to keep their customer.
Woolworths tried to compete on its fresh campaign and still does while as Coles tried to
compete on its efficiency. But at the end of the day battle is stuck on home brand products
with cheapest possible prices. That is an indicator for me that perfect competition will

Economics For Managers 3
eventually benefit the consumer. In my point of view, I don't think its sustainable way of
moving forward in current world scenario.
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
Noteworthy, perfect competition is the ideal market structure for any economy
due to the significant benefits to both consumers and producers. For consumers,
with perfectly competitive markets, there’s wide consumer choice, free information
flow, and consumer welfare is achievable. Moreover, producers enjoy market
efficiency and allocative efficiency which is ideal for making profits. Affordable
prices. Moreover, in perfectly competitive markets, firms are price takers which
make consumers enjoy relatively affordable prices. There's free entry of firms in
and out of the market thus promoting competition. However, I think, consumers
are the highest beneficiaries of perfectly competitive markets since their welfare is
guaranteed under perfectly competitive market structures.
Discussion forum 7.3
Why does your textbook Chapter 8 advise you to “consult the Yellow Pages” or search the
internet, in monopolistically competitive markets?
Answer:
The texts suggest using the yellow pages or search engines to discover monopolistic
competitive markets as it easily shows which markets have many competitors all supplying
similar products in a given locality.
For example looking up the lawn mowing services in any given postcode in Melbourne can
return up-to 100+ hits. They all provide a similar service, their overhead costs are all very

Economics For Managers 4
much the same and each can easily exit or enter the market with little to no barriers. The
pricing in the lawn mowing market are as you would expect with a monopolistic market,
there are neither price-setter nor price-takers. Some charge more than others as they may
have brand recognition and loyalty (Jim's Mowing) while other smaller companies set prices
lower to attract customers away from the large market shareholders.
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
Noteworthy, it’s easy to locate academic materials and quote them for reference
purposes from the internet than yellow pages. Through the yellow pages and internet, it
is easier to physically locate monopolistic competitive firms. Further, the use of the
internet is a fast updated global search engine thus the reason why its use is advocated.
Nowadays, the use of the internet is wide and acceptable as a source of academic
research and materials. Further, both the yellow pages and internet are advertising
tools thus the ability to clearly identify monopolistic competitive markets. Due to the
fact that yellow pages are updated annually, the internet is more reliable as compared
to yellow pages. Also, yellow pages offer fragmentation of the monopolistic competitive
markets as opposed to the internet.
Discussion forum 7.5
Explain the statement “prices act as a rationing device”.
Answer:
Pricing enforces the ratio between supply and demand – it acts to balance demand to the
available resource. An increase in price will reduce the demand for the item in a normal
market whereas a reduction in price will increase demand. Therefore a movement in price has
the effect of rationing a certain control over consumer’s desires.

Economics For Managers 5
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
Notably, price influences resource allocation. In the case of production, the price of
raw materials influences the quantity of goods to be produced in the sense that high
prices of raw materials will cause low production volumes and high consumer prices.
Also, price rations consumption of goods. Equally, an increase in the price of goods and
services, will make consumers want to save and reduce their expenditure thus making
price a tool for rationing. For instance, when the price of goods increases, consumers
are likely to spend less on goods and services due to the reduced income available at
their disposal. Higher prices imply fewer goods will be produced and consumed and
most consumers would rather save than spend on highly priced goods.
Discussion forum 8.1
Take the five entities from the Circular Flow of Money and briefly explain the role that each
plays.
ANSWER
According to Buultjens (2000, p. 10) the five sector model of the circular flow of money, or
income, more realistically represents the economy compared to the two-sector model.
 Households. Income for firms, create product demand which consumes
the firm's factors of production like labor, materials etc. Pay taxes. Firms or
production organizations. Produce goods and services for households and pay taxes to the
government

Economics For Managers 6
 Financial Sector. Banks and non-bank entities who borrow and lend
money. Receives savings from households which is a leakage as it is not spent on goods
or services. Lends to households, firms to allow production and purchasing
 Government Sector. Local, State and Federal. Levies a wide range of taxes on
individuals and companies, and redistributes on a range of budgetary programs. It is an
injection into the circular flow
 Overseas Sector: Imports and Exports. Imports are a leakage from the circular flow,
as the money used to pay for imports ends up overseas. Exports are an injection, as
income returns to the local economy.
Buultjens, J. (2000, p. 10) Excel Preliminary Economics, Pascal Press
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
Predominantly, the five sector circular flow model components are households,
finance, firms, overseas and government based sector whereas the two sector model
comprises of households and firms exclusively. In my opinion, the five sector circular
flow of income is realistic in the sense that the economy comprises of more than just two
components advocated for by the two-sector model. Also, in all economies, government
play a role in the flow of money, be it through the provision of utilities or licensing,
taxation of firms and household which is covered under the five sector circular flow of
money. The two sector model is an example of a closed economy while the five sector
model is from an open economy (Sanandres, 2017).

Economics For Managers 7
References
Sanandres.(2017).Macroeconomics: the Circular flow of income.
Sanandres.Esc.Edu.Retrievedfrom
http://www.sanandres.esc.edu.ar/secondary/economics%20packs/macroec
onomics/page_09.htm
Discussion forum 9.3
“But relax, there won’t be a recession [in Australia in 2015]” David Potts in The Age, 14
January 2015.
•What is a recession?
•When was the last recession in the Australian economic cycle and did the Government play
a role leading the economy out of recession?
ANSWER:
According to Business Dictionary, a recession is two consecutive quarters of negative GDP
growth.
More broadly this s a short-term (within a year) contraction of the economy marked by rising
unemployment, stagnant wages, and declining sales. The last time this occurred in Australia
was in 1991 and the period intervening has been the longest time an economy has avoided
their next recession.
According to Ric Battellino in 2010, the then Deputy Chair of the Reserve Bank of Australia
said the period since mid-1991 has been remarkable given the previous cycle of 5 to 7 year

Economics For Managers 8
growth periods followed by recessions. Battellino says much of the credit to this period
should go to "increased flexibility of the Australian economy and the pursuit of prudent and
disciplined financial policies". An example of the flexibility was the exchange rate and the
fact that the Australian dollar appreciated in value during both the dot-com crash of the late
90s and early 2000s and the GFC of 2007 - 2009. During this time the (global) market saw
transparently how Australia differed to the rest of the world and reacted accordingly.
Australia's "prudent and disciplined financial policies" he spoke about clearly insulated our
banking sector in particular against the fraud and mismanagement that was a hallmark in
global banking and real estate markets which caused the GFC meltdown. Other government
policies he praised include our industrial reformations which Battellino says made our
firms "more competitive and outward looking". He praised Australia's labor reforms and
financial institution reforms saying these led to stable labor costs and predictable investment
environments.
REFERENCES:
Ballettino R (2010). Twenty Years of Economic Growth - a speech given by the Deputy
Chair of the RBA. <http://www.rba.gov.au/speeches/2010/sp-dg-200810.html> accessed 9th
September 2017.
Business Dictionary (2017). Recession Definition.
<http://www.businessdictionary.com/definition/recession.html> accessed 9th September
2017.

Economics For Managers 9
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
Predominantly, recession implies stagnant economic activity lasting for a substantial
period of time(Investopedia,2017).Remarkably, the Australian government
implemented fiscal and monetary policies to stimulate economic activity in a bid to raise
the gross domestic product, stimulate investment, create employment opportunities
stable inflation and interest rates.However, fiscal stimulus policy by the Australian
government alongside China s demand for Iron and Steel contributed to economic
activity which led the country out of recession.Fiscal and monetary policies are
responsible for ending the recession through reviving the banking sector, curbing
interest rates and inflationary pressures which had contributed to the recession.
Discussion forum 7.2
1.Why would a firm pursue a position of monopoly?
2.How would you know if the firm was getting close to a monopoly?
ANSWER
Working for a local government organisation (Council) there is a perception that as
consumers are at times legally obliged to pay for certain services, the Council is operating as
a monopoly. I don’t think that Council would ever pursue a position of monopoly although I
think it is highly likely that the organization would defend its right to maintain a position of
monopoly, against a prospect of reform by the State Government. I think that this would be
more likely in a regulatory environment where delegated legislative powers can be used to
impose sanctions or order or direct persons to carry out certain actions. There has been a
creep of private companies being delegated with some regulatory powers, especially in the

Economics For Managers 10
private builder certifier sphere, in recent years. Which I would suggest is proving to be a
challenge for the court's system should the regulatory action require some judicial oversight.
Going back to the perception of monopoly by the community, even where Council or any
other government department is truly working as a monopoly (which I think is quite rare), I
think we are far better off than other areas of the world. For example, when considering
China, Wang and Ip (2014, p. 18) observe, in reality, the government monopoly created in
China was likened by many to a “humongous” steel net covering the entire country. We are
not there yet, fortunately.
References”
Wang, L and Ip, M 2014, Breaking the Government Monopoly, The Chinese Economy, Vol.
31, Issue
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
The pursuit of monopoly is influenced by the need to maximise profits due to the
non-existence of competition .Also, the desire to control the market share of a given
product can influence the decision to pursue monopoly .Moreover, the existence of large
economies of scale and tax incentives can motivate a single firm to venture into
monopoly .Further, monopolies enjoy large economies of scale, control market share
and also set their own prices which is geared towards maximised economic profit which
every commercial enterprise goals are set on. Typically, market share and price setting
attributes are key for monopolies to exist(Amosweb,2017).A firm with the largest
market share is a likely indicator of monopoly developing. Largely, the existence of high
entry barriers into the market or industry is likely to result into monopolies.

Economics For Managers 11
References
Amos Web.(2017).Monopoly, Characteristics. Amos Web. Com. Retrieved
from http://www.amosweb.com/cgi-bin/awb_nav.pl?
s=wpd&c=dsp&k=monopoly,+characteristics.
Discussion forum 9.2
In your opinion, what infrastructure should the Australian Government own?
Why?
These questions are great, as there are no wrong answers. Mainly because we can look at
examples from all over the world where it has either been privatized, or government-owned,
and both have succeeded (lowered prices) and failed (increased prices).
I believe a lot of this question comes down to how you associate on the political sphere.
Noting that conservative vs progressive is not simply a political opinion, but an evolutionary
trait to ensure we survive as a population (Mooney, 2014).
I think at this early stage of my knowledge, utilities, roads, healthcare, education, and any
other public goods. I am not convinced that PPP's are any more efficient than simply creating
an organization to construct the works individually.
The Why is a bit more complex. I think if we can avoid market failure we should. I also
believe it's a lot easier to change a structure of a government-owned entity, through public

Economics For Managers 12
opinion and an election, that trying to convince a monopoly to change their pricing structures.
There are also sensitive things that need to be managed at a government level, where there is
higher accountability that I believe the private sector should not handle.
References:
Mooney, C. (2014). Scientists are beginning to figure out why conservatives are…
conservative. [online] Mother Jones. Available at:
http://www.motherjones.com/politics/2014/07/biology-ideology-john-hibbing-negativity-
bias/ [Accessed 9 Sep. 2017].
ADD REPLY TO THIS ANSWER (MAKE FURTHER COMMENTS OR
THOUGHTS)
Arguably, privatisation leads to efficiency and productivity and in the process reduce
government expenditure in the provision of utilities. Moreover, in competitive markets,
privatized enterprises are market efficient which is ideal for the economy (Hutchens,
2014).However, some privatized enterprises had to be nationalized due to their inability
to deliver quality and efficient products. Besides, nationalization of Australia
infrastructure could benefit citizens because due to high operating costs some privatized
enterprises might be unable to deliver hence need for government .By and large, it's my
opinion that public utilities such as water, electricity, healthcare should be nationalized
by the Australian government largely, but not exclusively. This is because, public
utilities are basic for human survival, thus the need to make it affordable and
accessible to all citizens, despite operating at high costs or incurring losses.