AOS 1 U3

Question 1

Allocative efficiency

Answer 1

using resources to maximise society’s needs and wants

Question 2

Productive/ technical efficiency

Answer 2

using the lowest cost production method to produce g/s

Question 3

Dynamic efficiency

Answer 3

When resources are reallocated quickly to increase choice and meet the changing needs of consumers

Question 4

Intertemporal efficiency

Answer 4

refers to finding the optimal balance between current consumption/ spending of income VS saving income to finance investment and future consumption

Question 5

what can influence an expansion in the PPF

Answer 5

1) Rise in foreign investment
2) increase in target for skilled migration
3) technological breakthroughs
4) government spending on education
5) training of labour force
6) increase in worker productivity

Question 6

What assumptions are involved in PPD

Answer 6

1) two types of outputs
2) nation fully uses resources
3) quantity of resources is fixed/limited
4) nation uses resources in most efficient way possible

Question 7

What does PPD demonstrate?

Answer 7

1) relative scarcity
2) efficiency and inefficiency in allocating resources
3) nation’s PC
4) OC
5) possibility for economic growth

Question 8

what is opportunity cost (OC)?

Answer 8

Opportunity cost is equal to the benefit forgone by a decision not to direct resources into the next best alternative use.

Question 9

Factors of production

Answer 9

Resources are inputs used to produce g/s

Question 10

final demand

Answer 10

demand for products/services themselves (output)

Question 11

derived demand

Answer 11

demand for resources required to make products/ services

Question 12

MLS

Answer 12

economic wellbeing of individuals as affected by actual per capita consumption of goods and services and incomes per year.

Question 13

NMLS

Answer 13

quality of life, affected by the amount of leisure time, happiness, life expectancy, crime rate and quality of the natural environment.

Question 14

income effect

Answer 14

As the price increases some consumers may no longer be able to afford the product.

Question 15

substitution effect

Answer 15

Higher prices may also encourage consumers to look at the alternatives that are available in the market.

Question 16

Relative prices

Answer 16

comparing one good or service with another.

Question 17

Relative profits

Answer 17

we are comparing the profit of one good or service with another

Question 18

Demand line

Answer 18

Any movement up the line would be a contraction and any movement down the line would be an expansion

Question 19

Non-price factors that affect demand

Answer 19

Disposable income
Interest rates
The price of substitutes
The price of complements
Preferences and tastes
Population growth and demographic change
Consumer confidence (sentiment)

Question 20

Disposable income

Answer 20

Total amount that consumers have to spend on goods and services.

Factor income + government transfers – direct (income) taxes on factor income

Question 21

Interest rates (NPF affecting demand)

Answer 21

Cost of borrowing or return on an investment

Since most households have a mortgage, any increase in IR can decrease discretionary income and therefore demand.

Discretionary income refers to the money left over after essential bills such as mortgage repayments, electricity and internet have been paid.

Question 22

The price of substitutes (NPF affecting demand)

Answer 22

A good or service that may be used instead of the product in question.

For example, Coca Cola and Pepsi are substitutes.

If the price of Coca Cola increases, then the demand for Pepsi may also increase.

Question 23

The price of complements (NPF affecting demand)

Answer 23

Complementary products are generally consumed together but usually sold separately.

For example, puppies and dog collars are complementary products.

If the price for puppies increases, then the demand for dog collars may decrease.

Question 24

Preferences and tastes (NPF affecting demand)

Answer 24

Demand may be affected by an individual’s tastes, attitudes and preferences.

For example, changes in food diet or fashion.

If there is an influencer who provides a positive review on a fine dining restaurant, then the demand for that fine dining restaurant may increase due to a change in consumer preference of which fine dining establishment they most want to try.

Question 25

(NPF affecting demand)
Population growth and demographic change

Answer 25

A growing population will demand more goods and services and so demand generally increases across markets.

An ageing population generally increases demands for certain age-related goods and services such as health care and aged care.

Question 26

Consumer confidence (sentiment) (NPF affecting demand)

Answer 26

A measure of household expectations about the future state of the economy and/or their personal financial situation.

If I’m very confident about my financial situation because I’ve got a stable job, then I’m more likely to go on a luxurious holiday or make a big purchase such as a new car.

Question 27

Non-price factors that affect supply

Answer 27

Changes in the costs of production
Technological change and productivity growth
Climatic conditions and other disruptions
Number of suppliers

Question 28

Changes in the costs of production (NPF affecting supply)

Answer 28

If factors of production (land, labour, capital) costs increase, then expenses increase and profits decrease.

Firms are less willing to produce at every price point due to a decrease in relative profits in this market.

Therefore, supply will decrease, and the supply line will shift to the left.

Question 29

Technological change and productivity growth (NPF affecting supply)

Answer 29

New technology allows for an increase in technical efficiency through labour productivity (GDP per hour worked), hence, firms become more profitable.

Firms are more willing to produce at every price point due to an increase in relative profits in this market.

Therefore, supply will increase, and the supply line will shift to the right.

Question 30

Climatic conditions and other disruptions (NP affecting supply)

Answer 30

If Australian farmers experience a prolonged drought, then the production of agricultural products generally decreases.

Therefore, supply will decrease, and the supply line will shift to the left.

This tends to push prices up for the scarce agricultural products that are in the market.

Notice that despite rising prices, farmers are unable to respond as they cannot increase production due to the drought.

Question 31

Number of suppliers (NPF affecting supply)

Answer 31

If more producers enter the market due to attractive profits, then total production in that market should rise.

Therefore, supply will increase, and the supply line will shift to the right.