11 Economics IB/ATAR T1 Exam

Economics

The study of human behavior in relation to unlimited wants and limited resources

Micro-economics

Study of factors influencing smaller parts of the economy

Macro-economics

Study of factors influencing larger parts of the economy

Scarcity

Inability of limited resources to satisfy unlimited wants

Resources

Anything used to satisfy a want

Opportunity Cost

The highest valued alternative foregone when a choice is made

Ceteris Paribus

The concept that all things are held equal

Economic systems

Organizational and institutional patterns for making choices about wants and resource allocation

Price mechanism

System by which price changes are brought about by interactions between supply and demand in a market

Land

Natural resources with reward in the form of rent

Labour

Physical and mental work of people with reward in the form of wages

Capital

Man-made equipment, buildings, infrastructure with reward in the form of interest

Entrepreneurship/Enterprise

Organization of the production process with reward in the form of profit

Production Process

Involves using factors of production to create goods and services, followed by distribution, exchange, and consumption

Wants

Unlimited and insatiable desires, some recurrent, changeable, complimentary, competitive, single use, and durable

Distinguishing between economic systems

Based on ownership of resources, control of the economy, private vs social ownership, profit vs social motive, price mechanism, and consumer sovereignty

Command economy

Social ownership of resources, central authority decides production and prices, low consumer sovereignty

Market economy

Private ownership of resources, price mechanism used to allocate resources, strong consumer sovereignty

GDP

measures the value of goods and services produced by every sector in an economy, growth should be 3-4%

Factors affecting consumption expenditure

Include basic needs, disposable income, and luxury items

Factors affecting investment expenditure

Include interest rates, business expectations, and government policy

Factors affecting government expenditure

Include provision of public services and unplanned events

Factors affecting net exports

Include world economic climate and rapid economic growth

Phases of the trade cycle

upswing/recovery, boom, downswing/contraction, and recession/trough

Keynesian theory

Government intervention during downturns to boost spending and stabilize the economy

Fiscal Policy

Use of government expenditure and revenue to regulate the economy and influence the circular flow

Monetary Policy

Measures implemented by the RBA to bring about changes in aggregate demand

Role of the government in a market economy

providing a legal system, public goods, correcting market failure, maintaining competition, and stabilizing, allocating, and redistributing resources

Economic Growths

Measured using GDP annual growth rate (ideally 3-4%), impacting living standards, employment, inflation, and income distribution

Full employment

Measured using unemployment rate (ideally 4-5%), impacting living standards, skills shortage, and government expenditure

Inflation

Measured using inflation rate (ideally 2-3%) or CPI, impacting wages, income distribution, international competitiveness, and interest rates

External Stability

Measured using balance of trade, impacting increasing or decreasing balance

Demand

Quantity of a good/service a consumer is willing and able to buy at a given price over time

Supply

Quantity of a good/service a producer is willing and able to sell at a given price over time

Market Equilibrium

Point at which there is no need for change, represented by the intersection of supply and demand curves

Shift

Factors affecting demand and supply, leading to changes in equilibrium