Economic Concepts Revision U1 AOS 1 Flashcards

Question

what are resources

Answer 1

Resources: (aka factors of production) are inputs used to produce goods & services

Answer 2

effort that humans/workforce contribute to

Answer 3

equipment/buildings used to produce goods and services eg machinery, tools

Answer 4

Entrepreneurship is actually another factor of production, but is not covered in the study design.

Answer 5

Money (how much $) is just a medium used for exchange and not directly involved with production

Answer 6

tractor computer used at home teacher mineral sands computer used at Aus post great barrier reef a computer programmer the PM of Aus motor car used as a taxi farmland

Answer 7

Relative Scarcity is where needs and wants for goods/services > resources available

Answer 8

Limited oil reserves Shortage of skilled labor in a tech industry Limited investment capital available for tech startups Limited availability of high-tech materials

Answer 9

Earth Overshoot Day marks the date when humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year.

Answer 10

Opportunity Cost is the next best alternative/option given up (or “forgone”) in order to meet prioritised needs/wants meaning as our resources are limited, if we use a resource in one thing, then we cannot use/reallocate that same resource to another. eg If you spend time watching TV, you cannot spend that time studying. Here, time is the resource. The choice is Entertainment. The Opportunity Cost is less studying. i.e I lost the opportunity to study because I chose to allocate the time for entertainment instead.

Answer 11

Trade-offs are about sacrificing one thing for another. Similar but broader in scope than opportunity cost Sacrificing as opposed to reallocating resources Eg, saving for the future instead of spending on things now (Sacrificing happiness for security)

Answer 12

opportunity cost refers to what a person could have done with what was sacrificed refers to the next valuable opportunity trade off - describes what is sacrificed to get something else refers to two opportunities or more with choice Opportunity Cost: what next best alternative did you give up to get what you want? It cost me the opportunity to produce 1 fish, for every 1 banana Trade off: the giving up/sacrifice of one thing in return for something else? I sacrificed producing fish so I can produce bananas

Answer 13

Cost-Benefit Analysis: Value-based decision-making that involves comparing the cost against its expected reward

Answer 14

Governments and firms often use a cost-benefit analysis to help them decide where resources should be allocated.

Answer 15

Benefit to cost ratio (BCR): Divide total benefits by total costs. BCR > 1.0 = Net benefit = good ☺ BCR < 1.0 = Net cost = bad ☹

Answer 16

Create and share you own Cost-Benefit Analysis of one of the following: To do all your homework vs not To do subject X vs subject Y To buy X vs Y To study at uni what your parents want vs what you really want Choose you own to analyse Calculate the BCR. What’s the verdict?

Answer 17

making decisions based on prioritised needs and wants eg buying the car or saving for a house

Answer 18

Scarce resources are used in ways that maximise a nations productive output of goods and services If the maximum output of goods/services are being produced then it is more likely our needs and wants will be met i.e this will improve living standards We also want to minimise the opportunity cost/trade-offs of the decisions that we make

Answer 19

Productive or technical efficiency: productivity is maximised through minimum inputs (resources) and maximum output(at productive capacity)

Answer 20

Allocative efficiency: scarce resources are directed into producing goods/services that help more satisfy society’s needs and wants over other goods/services (opportunity cost)

Answer 21

productive is not always most profitable

Answer 22

Also known as PPD (Production Possibilities Diagram) A tool used to highlight concepts such as: Opportunity cost: What options are missed out Productive capacity: how much a nation/firm can produce Productive efficiency: How efficient are we producing goods/services with the given resources

Answer 23

Only two goods/services are produced in the economy All resources can be used in the production of either good Each unit of resource, goods and services are worth the same value At any given point in time, the economy’s productive capacity is limited by the curve

Answer 24

Any points along the line shows the productive capacity of different maximum combinations of goods and services produced where all resources are fully used Therefore, on the PPD, any point on the line is productively efficient Any point under the line however means resources are under-utilised Any point outside the line means a nation’s resources are over-utilised

Answer 25

We could try to increase quantity (volume) and/or improve quality (effectiveness) of resources available.

Answer 26

The curve shifts outwards

Answer 27

If the economy moves from point A to point B, they can produce 50 guitars that were not previously possible. What is the opportunity cost of this decision? Describe the problem if the economy was producing 250 guitars and 200 computers. How could this be improved? Describe the problem that might result if there was demand for 400 guitars and 450 computers. How could this be solved? What is the opportunity cost if the country decides to produce at Point A or F?

Answer 28

But what if no one needs/wants guitars?

Answer 29

All resources should be fully utilised and allocated to producing goods and services that meet a nations prioritised needs and wants For example, one nation in wartime might need to reallocate their metal resources to produce weapons more than cars; during peacetime it might do the opposite.

Answer 30

On the PPF, only one point on the line can be most allocatively efficient

Answer 31

Resources not allocated properly to meet needs is called “Market Failure” Usually requires some intervention or regulation (government) to correct (eg (disincentives, excise taxes, tariffs, subsidies etc)

Answer 32

Market failure can also occur due to: Monopolies/concentrated Market Power

Answer 33

Allocation of resources to produce demerit goods (alcohol, cigarettes, etc) These create negative externalities (negative effect to third parties) Eg; cancer from second-hand smoke; victims of alcohol-fuelled violence

Answer 34

Eg; a sole producer of goods/services can set higher prices and at lower quality . But consumers have no choice but to buy them due to lack of competitors)

Answer 35

refers to the nation’s access to quantities of goods and services to satisfy needs and wants

Answer 36

refers to the nation’s quality of life beyond their ability to access goods and services

Answer 37

Level of consumption of goods and services per person Income per person The purchasing power refers to how much you can buy with your money. As prices rise, your money can buy less. As prices drop, your money can buy more.

Answer 38

The quality of daily life Happiness Life expectancy Mental and physical health Freedom The state of the environment Leisure time Crime rates Literacy rates Quality of relationships

Answer 39

see ppt 4 slide 7

Answer 40

when you do - happier people - peace and harmony - willingness to share when you dont - riots - unrest - selfishness

Answer 41

The goal of everyone and every nation is to improve living standards

Answer 42

the activity of making, purchasing, or selling goods and services

Answer 43

producing, purchasing, selling goods and services with the limited resources available to satisfy society's needs and wants and thus improve overall living standards.

Answer 44

Gross Domestic Product (GDP): A numerical measure of economic activity Represents the total value of finished goods and services produced by a nation Is often (inadequately) used as a measure of a nations living standards

Answer 45

CONSUMPTION!! More consumption means more goods/services demanded.. More demand means more production needed to meet it.. More production means more employment and higher wages offered.. More jobs/higher wages means more income.. More incomes means more consumption..

Answer 46

To meet demand for more goods/services, businesses offer higher incomes and/or more jobs to consumers This allows consumers to fulfil more of their needs and wants due to increased ability to spend This results in higher material living standards

Answer 47

But! However too much consumption could lead to inflation (rising prices) as businesses take advantage of higher demand (maximise profits) or due to not having enough supply to meet it (scarcity) This increases the cost of living

Answer 48

Being employed or higher incomes: helps reduce stress and social isolation, strengthens mental and physical health, improves the quality of relationships. This results in higher non-material living standards

Answer 49

But! However, higher production from higher economic activity can: Increase pollution and other environmental issues as well as social issues such as burnout and time away from family

Answer 50

As firms cut production due to less demand, less resources including labour are needed. Unemployment increases, reducing average incomes and consumption. This means consumers can fulfil less of their needs and wants due to decreased ability to spend This results in lower material living standards

Answer 51

literally nothing lol

Answer 52

Unemployment and reduced/lost income can lead to: poverty homelessness, possibly higher crime rates, social isolation, reduced mental and physical health, unhappiness, increased stress and feelings of personal failure. This results in lower non- material living standards

Answer 53

However, a possible upside is that there is less pollution and pressure on the environment.

Answer 54

A 3.3% increase in Australia’s minimum wage. Is this response acceptable? “A 3.3% increase in Australia’s minimum wage causes Economic activity to grow. This results in MLS and NMLS increases.” What’s missing? What could be improved? b) Tropical cyclone hits North Queensland devastating vast crops. c) Taylor Swifts Eras Tour hits Australia with massive influx of fans locally and overseas.

Answer 55

Factor - identify the factor that is causing the change, what are the consequences (pos or neg) changes - what do businesses, consumers, and govt do in response. what motivates this response? why/how does it affect others? link what is the link/effect to economic activity outcome - how does it affect material and non - material living standards see egs on ppt 4 slide 29

Answer 56

What and how much to produce? How to produce? For whom to produce?

Answer 57

Traditional economies (pure) Market economies (pure) Planned/Command economies Mixed economies

Answer 58

Typically found in remote villages and areas run by tradition and tribal customs. - focused on family of the tribe - society is hunter - gatherer or nomadic - trade is based around a system of a barter - only what you need is produced - in the long term, a currency for trading is created

Answer 59

What and how much to produce? Only what is needed to survive. Influenced by seasonal conditions. 2 How to produce? Basic tools for farming, hunting and supporting survival 3 For whom to produce? Tribe or family, distributed by custom (seniority first or by need)

Answer 60

What is it? Doesn’t exist in pure form Societies with democratically elected governments who do not intervene in the running of the economy. - private property - freedom to choose - self interest is a motive - competition - system of markets and prices - no government regulation in a pure market economy

Answer 61

1 What and how much to produce? Based on consumer sovereignty (customer is king); their needs/wants determines goods/services made. Consumers will compare and choose goods/services due to relative prices 2 How to produce? Resources (factors of production) are used to produce goods and services. How a business will produce goods and services will depend on: Efficiency, Quality, and Costs of resources used 3 For whom to produce? Prices are set based on demand, supply, and the costs of production, (especially labour (wages)). Only those who can afford the goods/services can have it. Consumers are rewarded for their economic contribution whereas others will miss out (either fairly or due to circumstances outside their control), which leads to inequality.

Answer 62

What is it? Doesn’t exist in pure form; non-democratic, powerful governments that decide everything. - central economic plan by government - resources allocated by govt based on this plan - central plan used to prioritise production of g&s - laws and directives of govt support this plan - monopoly businesses carried by govt

Answer 63

1 What and how much to produce? Government plan and implement production targets and resources allocated based on what they think is needed/wanted; consumers have no say/input. 2 How to produce? Government owned, usually non-profit driven. Lack of incentive to improve productive efficiency which reduces productive capacity 3 For whom to produce? Government sets prices and wages levels to reduce inequality and ensure all can access essential needs in goods and services. However there is : reduced productive efficiency lower incomes & less availability of goods/services to meet actual wants/needs This results in lowered living standards

Answer 64

What is it? Mixes most of the ideas from market economies with planned economies to get the best of both worlds. Thus a dominant private sector for markets and a smaller public sector to regulate and intervene as needed. - most decisions are made by the operation of markets and relative prices - however, these is govt intervention in some markets to improve outcomes and reduce market failure

Answer 65

1 What and how much to produce? Consumer sovereignty still reigns but government will step in when there are signs of market failure. Some essential or ideal products that are expensive to produce may be subsidised by government so everyone can afford them 2 How to produce? Private businesses will try to maximize profits, but may cut corners to do so. Governments regulate and enforce standards for product quality, workplace safety and environmental protection 3 For whom to produce? Those providing scarce resources (eg labour skills) receive highest incomes to purchase more goods and services, and vice versa. As this may lead to inequality, Governments provide welfare support payments and other subsidies to support those who cannot afford to fulfil basic needs and wants.

Answer 66

Public sector organisations are owned, controlled and managed by the government or other state-run bodies to provide goods/services to the community. People working for public organisations are called Public servants Examples are Public schools, Public hospitals, Government agencies (eg Centerlink) Pros: Not profit driven but service driven. Usually free or subsidised for consumers. Cons: Can be inefficient production (bureaucracy). Funded and thus limited) by taxes collected and allocated.

Answer 67

Private sector organisations are owned, controlled and managed by individuals, groups or business entities. Pros: Efficient production, aims to maximize shareholder returns. Competition could result in lower prices Cons: Can be profits over people and planet

Answer 68

centre link optus vic state govt royal childrens hospital telecom aus mhs medicare medibank scotch college

Answer 69

When an organization that was public moves to private ownership it is called privatisation (eg Telecom -> Telstra)

Answer 70

household sector (consumers) business sector (producers) government sector

Answer 71

individuals who are both consumers of goods and services and who are also suppliers/owners of resources. consumer satisfaction

Answer 72

businesses or producers of goods and services who also demand resources from the household sector. profit and corporate social responsibility

Answer 73

govts that receive revenue from taxes, then use it to develop infrastructure, provide subsidies taxes can be from income, tariffs (trade tax), company tax, excise tax, g&s tax quality of life, competitiveness of society, and public safety

Answer 74

We use the 3 Sector 4 Flow circular model to visualize how the economy actually works We also note 4 flows (transactions) within the economy. They are equal in $ value. The higher value = higher economic activity They are interdependent; a change in one affects the others

Answer 75

Flow 1 — the nation’s supply of resources: Household sector sells (supply) resources (i.e. land, labour, capital) to the business sector.

Answer 76

Flow 2 — the demand for resources and the payment of national incomes: Businesses buy (demand) resources from the household sector to produce goods and services. Businesses pay incomes to households in return

Answer 77

Flow 3 — the nation’s spending of incomes or demand for goods and services: After paying government taxes on incomes, households spend the rest on purchasing goods and services for themselves The government spends taxes to purchase goods and services to support the nation.

Answer 78

Flow 4 — the production of final goods and services produced by businesses: Businesses adjust production to meet demand for goods and services, altering the level of economic activity. (measured by GDP)

Answer 79

see final ppt slide 3 for answer

Answer 80

Rationality & Self-Interest: Ordered preferences: Informed decision making: Marginal benefits from consumption:

Answer 81

Consumers are motivated by self-interest Carefully weigh up the expected costs and benefits of each and every decision with the objective of maximising utility. Are not influenced by those around them and are never instinctive or impulsive when making a purchase.

Answer 82

Consumers are able to rank their preferences and make choices based on these rankings in order to maximise their utility. There is an assumption that preferences will remain consistent over time.

Answer 83

Consumers have access to relevant and accurate information to make rational decisions.

Answer 84

Consumers are aware of the law of diminishing marginal utility and as such will be rational in consumption.

Answer 85

The law of diminishing marginal utility: each additional unit of a good or service that is consumed generates less utility than the previous one. Therefore, total utility will grow less rapidly with each additional unit consumed.

Answer 86

Incentive: Encourages a desired behaviour or response. The opposite is disincentive. Governments intervene in markets by providing both to encourage spending or saving in consumers.

Answer 87

Lets Encourage spending! = more demand for g&s = more production needed = more jobs/investments = higher economic activity; BUT over time = higher selling prices due to shifts in demand and/or supply shortage (from reaching/surpassing productive capacity) = demand or supply inflation = reduced purchasing power + cost of living increases = reduced living standards OK, So then let’s encourage saving! = reduces demand = reduces prices = lower economic activity BUT over time = reduced need to produce = reduces jobs = unemployment = unable to afford/meet needs/wants = reduced living standards.. ..and so on Think of a car; government is the foot on the accelerator and brake, economic growth is the speed. Balance and stability in economy is important.

Answer 88

Tax rebates/offsets: Think of them as discounts on the amount of tax you have to pay. Eg; If you take on private health insurance (thus reducing dependency on public health system (medicare)), you don’t have to pay the medicare tax Subsidies: Discounts or cash payments on goods/services to make them more attractive; the government pays the rest. Eg; solar panels, medicines, LED globes etc

Answer 89

Indirect/Excise Taxes: Laws/Regulations:

Answer 90

These are taxes on goods and services the government want to discourage due to negative effects to consumers and society. Eg; Taxes on alcohol, cigarettes, carbon tax, fuel.

Answer 91

These make it illegal to partake in certain goods/services like underage drinking, not wearing bike helmets, insider trading, etc

Answer 92

Maximise Profits: Minimise Production costs:

Answer 93

Using strategies to gain and retain customers through advertising, as well as addressing customer sovereignty through quality and pricing

Answer 94

Using strategies to reduce costs such as where/how they use raw materials efficiently, reducing wages or reduce workforce through upskilling, purchase and use more efficient capital resources or innovation.

Answer 95

However, reputation/image (and it’s effect on sales); the existence of non-profit organizations; and the adoption of PPP (People, Planet, Profit) challenge this traditional viewpoint

Answer 96

Tax rebates/offsets: Taxes are reduced on things like profits or goods/services needed to encourage more production or investment Eg; Tax deductions on essential capital goods, interest from loans, costs of running a business, etc Subsidies: Discounts or cash payments on resources to make them more attractive to use or to produce desired goods/services with (and sell for cheaper too); the government pays the rest. Eg; JobKeeper, fossil fuel industry, private schools, etc

Answer 97

Main goal: Maximisation of living standards: Maintaining and maximising the quality of life for the nation. Australia is a mixed economy. Its market runs freely but sometimes government needs to intervene to prevent instability and Market Failure, otherwise living standards will fall.

Answer 98

Three goals the Government focuses on is: Economic stabilisation Improving efficiency in resource allocation Redistribution of income

Answer 99

economic stabilisation There are 4 Phases of economic activity. If it is too unstable (too high/low and/or too quickly), living standards fall. The goal is to even it out. During booms, governments cut spending and increase taxes to slow spending. During recessions, governments increase spending and reduce taxes to encourage spending

Answer 100

improving efficiency in resource allocation Government enacts laws that: Promote more competition as it encourages reduced prices for customers, which encourages more efficient allocation and use of resources to maximise profits Encourage more production of socially beneficial cheaper goods and services (and thus resource allocation) that ensure everyone can afford an acceptable level of living standards Discourage production and consumption of harmful and undesired goods that lead to Market Failure

Answer 101

redistribution of income Usually in a free market, what you earn is from the value of your contribution. Although this seems fair, some people cannot work due to factors such as age, health, disability or disadvantage. This creates inequality which can result in civil unrest, crime and over time greater societal divide of “haves” vs “have nots”

Answer 102

Government might implement a progressive income taxes system– where they tax higher income earners more and lower income earners less. This provides more purchasing power to lower income earners to afford and meet essential needs and wants Government can also pay welfare benefits to further support those in most need Government can provide some services for free or discounted, eg bulk billing/Medicare, low cost public housing, school funding etc

Answer 103

Indirect/Excise Taxes: Taxes are imposed on the spending on certain goods and services the government want to discourage due to negative effects to consumers and society (eg fuel excise, carbon tax) Company taxes on companies based on size, reduced for smaller companies to encourage competition and startups Laws/Regulations: These make it illegal to partake in certain behaviours like anticompetitive behaviour, producing harmful products, taking advantage of workers and neglecting safety in the workplace

Economic Concepts Revision U1 AOS 1 Flashcards

(132 cards)