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The Economic and Business Environment Flashcards

The nature of the Economy, The Nature of Markets within the Economy. CH2 (62 cards)

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1
Q

What is the Economy?

A

All activities undertaken for the purpose of production, distribution and consumption of goods and services in a region or country

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2
Q

What is the Business Environment?

A

Refers to the internal and external factors which influence a business/es and how they operate

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3
Q

What are Internal Factors in a Business Environment?

A

Employees, management style, finance, culture

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4
Q

What are the External Factors in a Business Environment?

A

Political economic, social, legal, competitive factors

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5
Q

What is the Five Sector Circular Flow model?

A

It consists of five main grops or sectors of the economy.
How money moves through the economy.
Roles and connections between sectors. (Injections and Leakages)

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6
Q

What are the Five Sectors?

A

Housholds, Firms, Financial sector, Government sector, Overseas sector.

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7
Q

What is an Injection?

A

When money is going into the model

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8
Q

What is a Leakage?

A

When money is going out of the model

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9
Q

What is the Household Sector?

A

The Household secgor consists of al the poeple in the economy who sel their productive resources to firms.
Productive resources - Land, Labour, Capital, Enterprise
Households earn an income in return in the form of rent, wages, interest, profit.
Money is used to buy gods and services to satisfy needs and wants. (Consumption)

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10
Q

What is the Firms Sector?

A

The firms sector consists of al the businesses which produce and distribute goods and services to consumers.
Firms buy resources from households and provide them with income.
Firms use the productive resources of households to produce goods and service (production)
Savings and Investments

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11
Q

What are Savings? (S)

A

Savings refers to putting money away for later use.
This means that money isn’t going back into the company
Leakage

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12
Q

What is an Investment? (I)

A

When money is borrowed and used to expand and grow a business
Money is expanding and growing
Injection

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13
Q

What is the Government Sector

A

Activities of the federal, states and local governments
Taxation and Government Expenditure

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14
Q

What is Taxation? (T)

A

The government gains money through taxes from individuals and businesses when they earn an income or profit.
Money is not being spent or being put back into the economy
Leakage

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15
Q

What is Government Expenditure (G)

A

When governmetns spend money raised through taxation on things such as infrastructure, welfare paymentsm education and health.
Money is entering the economy.
Injection

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16
Q

What is the Overseas Sector?

A

Consists fo the exporters and importers of goods and services from the rest of the world.
Imports and Exports

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17
Q

What are Imports? (I)

A

Imports are when the Australian economy spends money on goods and services from the rest of the world.
Our money is leaving the economy as Austrlia does not profit from this.
Leakage

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18
Q

What are Exports? (X)

A

Consists of exporters earning an income selling goods and services to overseas consumers.
Money is entering the economy
Injection

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19
Q

What is the relationship between INjections and Leakages?

A

S+T+M = I+G+X
When injections and leakages are equal, there will be no change in the level of income/money flwoing around the economy.
Injections greater than Leakages, Economic Growth
Leakages greater than Injections, Economic Decline.
(Sally told Mike I Got X-rays)

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20
Q

How are the sectors of the economy interdependent on each other? Financial

A

Financial institutions are intermediaries between savers and borrowers
Most businesses will borrow money, particularly when they need to expand the business which may involve buying new equipment or even moving to bigger premises (investment)
Financial intermediaries collect the savings of thousands of depositors, and then have large sums available for businesses to invest in growth

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21
Q

How are the sectors of the economy interdependent on each other? Government

A

ASIC, Austrlian secutirties and INvestment Commision.
Helps to protect consumers from a financial perspective. Regulates the financial services industry

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22
Q

What is the Business Cycle?

A

The business cycle is a model of the natural fluctuations of activity wihch take place in an economy. Measured through Gross Domestic Product and time.

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23
Q

What are the Features of a Business Cycle?

A

Booms, Expansions, Busts, Contractions, Peak, Trough, Recession, Depression

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24
Q

What is a boom/expansion

A

Periods of strong activity

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25
What is a bust/contraction
periods of weak activity
26
What is a peak
The highest point of economic activity, before declining is experienced
27
What is a trough
The lowest point of economic activity, before growth is experienced
28
What is a recession
A situation of two quarters or 6 montsh of negative growth
29
What is a depression?
Prolonged and severe recession
30
What is the Growth Trend Line
The long term average of economic output (GDP) over time.
31
What is the impact of Recessions?
Income and production at their lowest level unemployment is at its highest level wages an salaries either fall or grown very slowly demand is low bankruptcy is more common interest remains low inflation rate stars low
32
What is the impact of Booms?
Income and Produtino at their highest levels full employment wages and alaries are relatively high increase in supply and deman interest is high inflation raises sharply
33
What is the role of government in regulation the business cycle?
If the economy is expanding too quickly, and at a risk of overhating, the reserve bank may increase interest rates to slow down the economy by encouraging people and businesses to spend less. Higher interest rates on depostis and loans provide an incentive for people to save their money rather than spend it or borrow more. VICE CERSA. reduce interest, envourage spending, lower interest invites people to spend or borrow money rather than save it.
34
What is Price Mechanism?
The point at which demand and supply intersect. This helps determine market price.
35
What is Price Equilibrium?
At Market equilibrium, buyers and sellers agree on a price and quantity of prouct to be exchanged. It is the point at which suppliers and consumers agree no a price ad exchange goods or services for money.
36
Changes to Equilibrium (due to demand)
increase in demand, shifts right, increase in price and quantities. Decrease in demand, left shift, decrease in price and quantity. Only non-price factors result in shifts of the entire curve.
37
Changes to Equilibrium (due to supply)
Increase supply, right shift, decrease in price, increase in quantity and decrease in price. Decrease in supply, left shit. increase in price and decrease in quantity Only non-price factors result in shifts of the entire curve.
38
What is Market Disequilibrium?
When quantity demanded and quatity supplied at a particular price does not equal. Two scenarios - excess supply Excess demand
39
What is Demand?
Demand refers to the quantity of a good or service that consumers are willing and able to buy at different prices at a given point in time
40
What is the law of Demand?
The law of demand refers to teh negative causal relationship between price and quantity demanded. (Price and quantity move in opposite directions)
41
Reasons for increase/decrease in Demand
Rise/fall in consumer income Increase/decrease in size/population a substitute good becomes more expensive/cheaper if prices are expected to rise/fall in the future
42
What is supply?
Refers to the quantity of a good or service that businesses/firms are willing and able to produce at different prices at a given point in time.
43
What is the Law of Supply?
Refers to the positive causal relationship between price and quantity supplied (price and quantity move in the same direction)
44
Reasons for increase/decrease in Supply
Increased/decrease efficiency a fall/rise in the cost of production Improved or unfavorable climatic conditions increase/decree in the number of suppliers
45
What is a Market?
A market exists in any situation where buyers and sellers come togther to exchange good and services
46
What can a Market be?
Situated in a physical location Spread across a number of location Have no physical location at all Retail, labour, Stock, financial.
47
What are Reatil markets?
The markets that allow us to buy most of our goods and services. Consumers purchase goods and services from sellers by paying a monetary price. e.g. Shopping centres, online shopping websties
48
What are Labour Markets?
Prospective employees are hoping to sell or supply their labour to employers These employers will buy or demand the skills and effort of suitable employees. e.g. Placement to a sign in a shop window to indicate a job vacancy Online 'job boards' such as Seek The price paid by the employer as a buyer of labour is known as wage or salary
49
What are Financial Markets?
Financial markets are intermediaries between the savers and the borrowers in an economy. Households earn an income deposit their money into a bank or other financial institution Others in an eonomy need to borrow money - Businesses borrow and invest so they can grow and expand
50
What are Stock Markets?
Involves relationship between buyers and sellers Shares in public companies that are bought and sold. A share is a unit of ownership in a company
51
What is Government Intervention?
Refers to any action carried out by the government with the direct objective of having an impact in the economy Governments intervene in market to try and overcome market failure. The government may also seek to improve the distribution of resources (greater efficiency and equality).
52
What are the aims of government Intervention?
1. Stabilise prices for gods with important social importance (energy, petrol, medication) 2. Prevent environmental degradation 3. Conservation of natural resources 4. Discourage demerit goods/encourage merit good 5. Provide minimum incomes
53
How can Governments Achieve this?
price control schemes (fixing a maximum price) Price support schemes (setting a minimum price) Implementing taxes Enforcing laws overcome market failure
54
What is Environmental Degradation?
Environmental degradation is the deterioration of the natural environment and is cause by thing such as Pollution and Habitat destruction
55
How to prevent Environmental degradation?
Governments can attempt to reduce environmental degradation by imposing regulations that restrict people from things that cause environmental damage. e.g. Laws that ban littering The use of some chemical sin manufacturing Restriction on how and where building developments can take place.
56
What is the EPBC Act?
It is a law governnments have implemented to protect the environment. EBPC stands for the Environment Protection and Biodiversity Conservation Act 1999. It aims to balance the protection of the environment with social and economic needs by ensuring ecologically sustainable development.
57
Why do we need to conserve our natural resources?
The overuse of natural resources is both an environmental and economic issue. All need to be conserved so that future generations are not restricted from using them. Further, conservation prevents environmental degradation
58
What are some challenges faced in conserving our natural resources?
The trade-off between the short-term exploitation of natural resources for economic gain and the long term needs for both society and the economy For long term economic growth, the environment needs to be sustainable managed.
59
How do Savings work?
When you deposit your money in a bank account, the bank will pay you interest on your savings. The banks then lend money deposited to other consumers and/or businesses.
60
What is Price Stability?
Price stability is when there are no major fluctuations in the prices of goods and services Fluctuations in the prices of goods and services can occur when there a is a mismatch between demand and supply - When there is a greater demand than supply When there is more supply than demand When the equilibrium price is socially undesirable and does not achieve equitable outcomes
61
What is meant by Pirce of Essential Goods
There are some goods in the economy which are deemed essential in nature That is, goods which are considered necessary for human survival or to meet a minimum standard of living Due to strong demand for essential goods, or low supply, or a combination of both, the prices of some essential goods can fluctuate to excessive levels and become unaffordable to the typical consumer
62
How do Governments stabilise rices in the market
1. Setting minimum prices above equilibrium price (price floors) 2. Setting maximum prices below equilibrium price (price ceilings) Resons for stabilising prices: 3. Provide support to households/consumers on low incomes 4. Provide support to firms (smaller firms, protection of deomestice industries)

Commerce (2 decks)

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