Flashcards in AOS1 Deck (19):
Refers to the opportunity given to consumers with limited money and 2 or more options and one is chosen over the other/s. The non selected good/s or service/s becomes the opportunity cost.
Example - buying dinner you have $10, there's subway and KFC , you choose subway and now your limited money is gone therefore KFC isn't selected and becomes the opportunity cost.
Effective allocation of resources
Refers to the way in which a nation determines the application of their resources. Western economies rely on both price market and government interventions, Australian's don't pay for full health care.
Law of demand + side factors
States that when prices of goods and services rise demand decrease, and vise versa. Known as an inverse relation. Side factors -
Disposable income - higher - moreD
Taste and preference -trends- fashionable - more D
Interest rates - lower - more to spend - more D
Population growth -more people -more D
Price of substitute goods -increase - more D to original good
Consumer confidence - high = more spending - more D
Law of supply + side factors
States that as prices rise the quantity supplied also rises and vise versa. This is a positive relation, side factors -
Cost of Inputs - cheaper - more $ so -more S
Productivity growth -higher -more outputs - more S
New tech -better efficiency -more outputs - more S
Climate conditions-favourable-more inputs -more S
P.C - many S & b, same product, no ads, price takers, easy entry and exit - dandy market
M.C - many S & b, diff product, use of ads, moderate entry and exit
O - few S, many B, some product diff, use of ads, difficult entry and exit
M - one dominate S, many B, price makers, difficult entry and exit
Refers to the responsiveness of quantity demand or supplied to a change in prices. Three types
1 - relative elasticity - change in price is smaller than change to demand/supplied quantity.
2 - unit elastic - change to price is equal to the change to demand or supplied quantity
3 - relative Inelastic - change in the price is larger than the change to demand or supplied quantity.
Determinants of D elasticity
Type of good - luxury(cars) - R.E
necessities (bread) - R.I
Substitute good - many(cars -brands) - R.E
No substitutes/unique (matches) - R.I
Time - short - R.I , long - R.E
Cost of good - expensive - R.E, cheap - R.I
Minor compliments -goes with expensive good-R.I
Determinants of S elasticity
Storability - perishable - R.I, won't deteriorate- R.E
Resources mobility - moved between industries -R.E
Time - short - R.I, long - R.E
Is a situation where the allocation of resources isn't effective. Therefore resulting in lower standards of living and requiring government interventions. 4 types of failure
Situation in the market where monopolies or an oligopolies exercises full control, restricting completion and outputs , increasing their prices, lower efficiency & customer service because consumers don't have choice as the firm has full control over the industry, which results in lower standards of living.
Government interventions for market power
Deregulation of key markets - removing restrictions of important markets like the labour market which increase competition as firms can set there own wages saving on production cost.
Reducing tariffs - reducing tariffs on imports allow local small firms have a greater competitive level as it reduces production costs from cheaper inputs and improves productivity and outputs + efficiency.
Occurs when the seller has greater knowledge and Information on the good or service they are selling, therefore they leave key information out to try seal the deal, making the good or service look more appealing. - car yard salesmen
Government intervention for asymmetric information
Government laws - passing government legislation to ensure that sellers give full product discourse to buyers will help make the best decision.
Access to info - using ads to show all the bad sides to the goods or services by educating the consumers which the firm doesn't as they just want sales. - cigarettes
Goods and services that are seen as desirable to society and are needed regardless of income, like free education and health. Governments supply services as they can't extract payment out of everyone as it's impossible, this is known as the free rider problem. - street lights
Government interventions for social goods
Annual budget pays for essential services - to provide socially desirable goods and services the government outlines there expenditures for sectors in the budget, like education and health, this funding goes towards the services which is provided to society.
Subsidies to supplies - government pays firms to product more socially desirable goods and services and environmentally friendly ones, this subsidy makes supply more favourable so there's more supply at cheaper prices to consumers.
is the cost or benefit obtained by a 3rd party. Negative externality is where the consumer doesn't pay for the damage done to the environment, like chemical oders released into the air from firms.
Positive externality - when the party doesn't pay or contribute the the first person success but carries on to theirs.
Government interventions for externalities - negative
Government laws - can put in place legislation to reduce damage to environment from waste and improve production and reduce waste. - carbon tax
Indirect tax - on tobacco, tax on goods that have a negative externality which gives government funding, damages the environment so increasing the costs makes them look less attractive and deduced the demand.
This is the fundamental economic problem which refers to society having unlimited wants and needs but limited resources to satisfy them.