EOCNOMICS unit 1 and 2 exam

PPF

represents the concept of choice, illustrates the many possible combinations of any 2 goods or services an economy can produce with its resources

Productive capacity<

the maximum amount of goods and services an economy can produce with its available resources

Productivity growth

when an economy becomes more efficient, producing more goods and services with the same resources

Points outside the curve

cannot be achieved unless an increase in quality or quantity of resources, improving efficiency

Point inside the curve

economy is not efficiently using resources, there is an underutilisation of resources causing inefficiencies

Economic agents

individuals and organisations that participate in the economy and decision-making

Private sector

made up of households, firms and organisations, they are owned and managed by private individuals and are profit driven

Public sector

refers to the government and government owned entities, they provide services for public welfare and aim to improve society

Mixed economy

an economic system where consumers and producers make decisions based on supply and demand, with private ownership of productive resources and minimal government intervention

Planned economy

an economic system where the government is central and makes all decisions regarding the production and distribution of goods and services, focusing on the common good and aiming for social and economic equality

Pure economy

is a hypothetical economic system that implies the absence of government intervention and relies solely on the markets

Consumer sovereignty

refers to consumers influence on what the market produces through their purchases

Cost benefit analysis

a systematic approach to compare the expected benefits of a project against expected costs, it ensures efficient resource allocation and minimises opportunity costs (BCR>1 is good, BCR<1 is bad)

Role of government

the role of government in economic stabilisation, improving economic efficiency in resource allocation, redistribution of income to improve living standards and monetary and fiscal policy

Fiscal policy

the use of government spending and taxation to influence the economy

Monetary policy

the RBA setting the cash rate to stimulate or dampen economic activity

Market

a place or situation where buyers and sellers come together to exchange goods and services

Perfect competition

everyone sells the same thing, lots and lots of sellers, perfect information, price takers, easy barriers to enter & exit

Example of perfect competition (close)

fruit market and share market

Monopolistic competition

products are similar but not the same, lots of sellers, easy barriers to enter & exit, price makers (to an extent)

Example of monopolistic competition

retail and restaurants

Oligopoly

few large sellers, price maker, lots of brand and product differentiation, difficult barriers to enter & exit (high costs and tuff barriers)

Examples of Oligopoly

supermarkets, oil companies and banks

Pure monopoly

one seller, no substitutes, difficult barriers for entry & exit, price MAKERS/setters

Examples of monopoly (close)

water company, electric company, NBN and airport operator

Demand

the quantity of a good or service that buyers are willing and able to purchase at different price levels

Law of demand

as the price of a product increases, the total quantity demanded decreases

Non-price factors affecting demand

disposable income, price of substitutes, price of complements, preferences and testes, interest rates, changes in population, consumer sentiment and government intervention

Supply

the quantity of a good or services suppliers are willing and able to offer at different price levels

Law of supply

that as the price of something increase, the quantity supplied increases

Non-price factors affecting supply

technological change, productivity growth, climatic conditions, disruptions, government intervention and factors affecting the cost of production

Equilibrium

represents the price and quantity of goods and services on which consumers and producers agree on, point that 'clears' the market

Market mechanism (price signals)

price signals are the change in the price of a good or service which indicates that the supply or demand for it should be adjusted

Relative prices

the price of one good or service to another

Change in relative price

impact how resources are allocated in the economy, profit maximisation

Example of the market mechanism

a rising price can signal high demand, encouraging producers to supply more and consumers to reduce their purchases

Higher relative prices

may reflect and increase (right shift) in demand, sending signals its more profitable, reallocation of resources

Aggregate demand

the total demand for goods and services in the economy

C

the total spending by households and non-profits on goods and services

I

spending by businesses on capital goods, increasing the ability to produce

G

government spending on goods and services

X-M

net exports (exports - imports)

Aggregate Supply

the total volume of goods and services producers are willing and able to supply to the market at a given price level

Productive capacity

maximum output using all resources efficiently

AS and productive capacity

when AS increases, productivity capacity increases (greater AS = greater GDP)

Factors that influence quantity and quality of productive resources

labour (skilled/unskilled, workforce size, education and health) + capital (machinery, infrastructure and technology) + natural (land, minerals and energy) + entrepreneurship (innovation and risk-taking)

GDP

the total value of all finished goods and services produced within an economy over a period of time

Real gdp

gdp adjusted for inflation, shows true output levels

Nominal gdp

gdp measured at current prices

GDP per capita

gdp divided by population, it shows average output per person, used to measure average living standards

GPI

uses gdp as a base measure but accounts for income distribution, environmental and social factors, it measures if growth enhances wellbeing

MAP

is developed by the ABS and uses statistical evidence and social, environmental and economic indicators to provide insight into national progress

HDI

made by un, it evaluates countries based on health, education and standard of living and aims to provide a broader understanding of human development (development is more than growth)

Economic growth

the increase in the value of goods and services produced in an economy over a period of time, measured by % change in real GDP

Business cycle

a cycle of economic expansions and contractions

Expansion (recovery)

rising gdp, confidence up, unemployment down, inflation up

Peak (boom)

max gdp, low unemployment, high inflation, strong investments

Contraction (recession)

falling gdp, rising unemployment, low inflation (deflation or disinflation), stimulus likely

Affluenza

a social condition arising from the desire to be more wealthy or successful

Inflation

the sustained increase in the general price level of goods and services over a period of time (prices are rising)

deflation

the sustained decrease in the general price level of goods and services over a period of time (prices are falling)

Disinflation

a decrease in the rate of inflation (prices are still rising but at a slower pace)