Econ year 11

Consumer sovereignty

consumers control the market through their demand

Average propensity to consume

proportion of income spent on consumption

Average propensity to save

proportion of income saved

Factors that affect to save or to spend

Personality, Culture, Future plans, income, government policies, credit availability, age

Utility

satisfaction/pleasure that consumers want when they spend their money.

Substitute good

A good you may buy in place of another good. E.g nuggets and tenders.

Complement good

A good used with another good.

Business firm

an organisation that produces goods and services for profit.

Industry

a group of firms making similar products.

Productive capacity

Potential output when using all resources

Labour specialisation

When a business breaks down production into smaller units and hiring for expertise in these units instead of the whole process

Location specialisation

Occurs when a large number of businesses from the same industry are in the same area, allowing them to share infrastructure and rescue costs.

Capital specialisation

Using specifically designed equipment, like the sifting machines at kfc.

External diseconomies of scale

Factors outside of business control that increase costs.

External economies of scale

cost savings due to factors outside of business control.

Internal economies of scale

cost advantages that a firm achieves through its own growth and expansion

Internal economies of scale

cost saving advantages due to expansion

Economies of scale

cost advantages as you expand production.

Technical optimum

The best of cost savings and max production in economies of scale

List factors influencing consumer choice

• Level of income:

• Price of the good or service itself:

• Price of substitute products:

• Price of complement goods:

• Taste and preferences:

• Advertising:

List sources of consumer income for labour

wages, salary, fringe benefits(stuff on top of main salary such as staff discounts)

List sources of income from land

rent

List sources of income from enterprise

profit

List forms of social welfare

Age pension:

Parenting payment:

Disability:

Job seeker:

What are the 3 questions business ask before producing

What to produce?

How much to produce?

How to produce?

Natural monopoly

A market structure where certain goods only have one supplier, primarily due to large investments.

Merit Goods

Goods or services that the government believes are beneficial for people but which the free market tends to under-produce or under-consume because individuals often undervalue their long-term benefits.

Example: Education

Demerit Goods

Goods or services that are considered harmful to individuals and society but are often over-consumed in a free market because consumers ignore their long-term negative effects.

Example: Cigarettes

Public Goods

Goods that are both non-excludable (you cannot prevent non-payers from using them) and non-rival (one person’s use does not reduce the amount available to others).

Example: Street lights

Free Riders

Individuals who benefit from a public good or service without paying for it.

Externalities

The unintended side effects of economic activity experienced by third parties.

Positive Externality

A beneficial side effect enjoyed by a third party who was not directly involved in the production or consumption of a good or service.

Example: Getting vaccinated

Negative Externality

A harmful cost imposed on an unrelated third party as a result of an economic transaction or activity.

Macroeconomic Policy

Government actions designed to affect the performance of the economy as a whole.

Fiscal Policy

The use of government spending (expenditure) and taxation (revenue) through the Federal Budget to influence the level of economic activity.

Monetary Policy

Adjustment of interest rates to influence economic activity.

Microeconomic Reform

Policies aimed at individual industries or markets designed to increase efficiency.

Progressive Tax

A tax system where the tax rate increases as the taxpayer's income increases.

Example: Income tax

Regressive Tax

A tax system that takes a larger percentage of income from low-income earners than from high-income earners.

Example: GST

Proportional Tax

A tax system where the tax rate remains constant regardless of income or wealth.

Example: Company tax

Market Failure

A situation in which the free market mechanism fails to allocate resources efficiently.

Price Ceiling

A legally established maximum price that sellers can charge for a good or service.

Price Floor

A legally established minimum price that buyers must pay for a good or service.

Corporatisation

Government policy designed to make public trading enterprises operate more efficiently like private businesses while remaining government-owned.

Privatisation

The transfer of ownership of government-owned assets or businesses to the private sector.

Limitations of the free market

• Failure to provide vital goods and services

• Feedback loop inequality

• Lack of social consideration leads to social costs (externalities)

• Abuse of market power

Price discrimination

Selling a good or service at different prices to different buyers.

Exclusive dealing

Forcing suppliers to deny dealing with competitors.

Collusion/market sharing

When competing firms team up and set a price, preventing new competition from arising.

Examples of federal government responsibilities

Medicare, defence, immigration

Examples of state government responsibilities

education, transport

Examples of local council responsibilities

Town planning, sewage

Public sector trends

• Increasing portion of GDP cost

• Decreasing infrastructure and more social welfare

• Lower employment due to privatisation

Functions of the government

• Resource reallocation

• Income redistribution

• Ensuring sustainable economic growth

• Providing vital services

Contrast direct and indirect taxes

Direct taxes are paid directly to the government by the taxpayer (like income tax), while indirect taxes are collected by intermediaries from the end consumer (like sales tax).

Trends of government funding

roughly half is PAYG income tax

20% is company tax

13% is GST

Discuss automatic stabilisers in econ

Since econ activity is inverse to unemployment, social welfare is as well leading to surplus and deficits during the right times

Government policy influences

parliament and political parties

businesses (lobbying)

Unions

Activists

Media

The world

Labour market

The interaction between employers demanding labour and workers supplying labour to determine wages and employment levels.

Derived demand

The demand for labour that depends on the demand for the goods and services it produces.

Human capital

The skills, education, training and experience possessed by workers.

Occupational mobility

The ability of workers to move between different jobs or occupations.

Geographic mobility

The ability of workers to move between different locations for work.

Participation rate

The percentage of the working-age population either employed or actively seeking work.

Workforce

The total number of people employed and unemployed in an economy.

Employed

People aged 15 and over who are working for pay, profit or unpaid in a family business.

Unemployed

People aged 15 and over who are not working but actively seeking and available for work.

Unemployment rate

The percentage of the labour force that is unemployed.

Underemployment

Workers who are employed but want and are available for more hours of work.

Full-time work

Employment involving standard full-time hours, usually around 35–40 hours per week.

Part-time work

Employment involving fewer hours than full-time work.

Casualisation

The increase in casual employment with fewer leave entitlements and less job security.

Outsourcing

The practice of contracting work to external businesses or overseas firms.

Contractor

A self-employed individual hired to provide services under a contract.

Sub-contracting

The practice of a contractor hiring another business or person to complete part of a job.

Income from work

Earnings received by individuals in return for labour services.

Wage rate

The price paid for labour per unit of time (e.g. per hour).

Wage outcomes

The level of pay received by different groups of workers.

Income distribution

The way income is shared among individuals or groups in an economy.

Non-wage outcomes

Benefits from work other than pay, such as job satisfaction, flexibility or leave entitlements.

Equitable distribution of income

A fairer sharing of income across society.

Arguments for income equality

Reasons supporting fairer income distribution, such as social cohesion and reduced poverty.

Arguments against income equality

Reasons supporting income differences, such as incentives for effort and productivity.

Union

An organisation that represents workers’ interests in wages and working conditions.

Employer association

An organisation that represents employers in negotiations and industrial matters.

Enterprise agreement

A negotiated agreement between employers and employees about pay and conditions.

Modern award

A legally binding document outlining minimum wages and conditions for specific industries or occupations.

Fair Work Commission

The independent government body that regulates Australia’s workplace relations system.

Minimum wage

The lowest legal wage employers can pay workers.

Industrial relations framework

The system of laws, institutions and processes that regulate employment and workplace relations in Australia.

Australian workforce characteristics

Features such as ageing population, higher female participation, increased service sector employment and cultural diversity.

List factors that influence the demand of labour

firm’s output, labour productivity, cost of other inputs (especially capital), pay

List factors that influence the supply of labour

pay, working conditions,qualifications, labour force participation rate

List characteristics of affecting au workforce

population size, age distribution, education

impact of population size on workforce

determine potential labour supply

impact of age distribution on workforce

determines share of working age population and strain on public services

Impact of education on workforce

affects job opportunities, income and productivity

Pro of migration for workforce

helps to fill in labour shortages by bringing in specialised skills

Con of migration for workforce

places strain on public services and housing