Year 11 Economics Core Concepts Flashcards

Vocabulary-style flashcards covering key definitions, mathematical relationships, and fundamental concepts from the Year 11 Economics Preliminary Course notes.

Households (Circular Flow Model)

The sector in the circular flow model that supplies factors of production and receives income.

Firms (Circular Flow Model)

The sector in the circular flow model that produces goods and services and pays incomes to households.

Financial Sector (Circular Flow Model)

The sector in the circular flow model that receives savings and channels funds into investment.

Government Sector (Circular Flow Model)

The sector in the circular flow model that collects taxation and undertakes government expenditure.

Overseas Sector (Circular Flow Model)

The sector in the circular flow model that represents exports and imports.

Injections

Spending added to the circular flow of income, consisting of Investment ($I$), Government expenditure ($G$), and Exports ($X$).

Leakages

Income removed from the circular flow, consisting of Savings ($S$), Taxation ($T$), and Imports ($M$).

Equilibrium in the Circular Flow

The state where total injections equal total leakages, expressed by the equation $I + G + X = S + T + M$.

Business Cycle Stages

The four main stages of real GDP fluctuations over time: Expansion, Peak / Boom, Contraction, and Trough.

Expansion

A stage of the business cycle where GDP rises, consumption and investment rise, unemployment falls, and profits increase.

Peak / Boom

A stage of the business cycle characterized by high capacity use, low cyclical unemployment, strong confidence, and potential rising inflationary pressure.

Contraction

A stage of the business cycle where GDP growth slows or falls, spending, profits, and investment weaken, and unemployment rises.

Trough

The lowest point in the business cycle before recovery begins.

Consumer Sovereignty

The power consumers have to influence what firms produce through their purchasing decisions.

Disposable Income

Income available after direct taxation, calculated as $\text{Disposable income} = \text{income} - \text{direct taxation}$.

Allocative Efficiency

A state where resources are directed toward the goods and services most desired by consumers.

Productive Efficiency

A state where output is produced at the lowest possible cost with available resources and technology.

Dynamic Efficiency

The improvement of productive capacity over time through innovation, technology, investment, and skills.

Labour Productivity

A measure of output produced per unit of labour input, calculated as $\text{Labour productivity} = \frac{\text{output}}{\text{labour input}}$.

Price Elasticity of Demand (PED)

A measure of how responsive quantity demanded is to a change in price, calculated as $\text{PED} = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in price}}$.

Elastic Demand

A situation where $\text{PED} > 1$, meaning quantity demanded changes proportionally more than price.

Inelastic Demand

A situation where $\text{PED} < 1$, meaning quantity demanded changes proportionally less than price.

Unit Elastic Demand

A situation where $\text{PED} = 1$, meaning quantity demanded changes by the same proportion as price.

Total Revenue and Price Elasticity Matrix

A relationship matrix showing how total revenue ($\text{TR} = \text{Price} \times \text{Quantity sold}$) responds to price rises or falls depending on whether demand is elastic, inelastic, or unit elastic.

Movement Along the Supply Curve

A change in quantity supplied caused strictly by a change in the price of the good itself.

Shift of the Supply Curve

A change in supply caused by non-price determinants (e.g., production costs, technology, productivity) shifting the curve right (increase) or left (decrease).

Derived Demand (Labour Market)

The concept that businesses demand workers in order to produce goods and services demanded by consumers.

Unemployment Rate

The percentage of the labour force that is unemployed, calculated as $\text{Unemployment rate} = \frac{\text{unemployed}}{\text{labour force}} \times 100$.

Labour Force

The total number of people who are employed plus those who are unemployed, calculated as $\text{Labour force} = \text{employed} + \text{unemployed}$.

Types of Unemployment Table

A classification of unemployment categories including Cyclical, Structural, Frictional, Seasonal, Long-term, and Underemployment based on their causes and meanings.

Cyclical Unemployment

Unemployment caused by weak aggregate demand during an economic downturn.

Structural Unemployment

Unemployment occurring when workers' skills do not match the skills demanded by employers.

Frictional Unemployment

Short-term unemployment occurring while workers move between jobs or enter the labour force.

Seasonal Unemployment

Unemployment that occurs because employment varies according to the season or time of year.

Long-term Unemployment

Unemployment lasting for an extended period, which can cause skill loss and social costs.

Underemployment

A state where a person is employed but wants and is available for more hours.

Interest Rate

The cost of borrowing money or the return received from saving/lending money.

Reserve Bank of Australia (RBA)

Australia's central bank, responsible for conducting monetary policy, promoting price stability, supporting full employment and economic prosperity, and maintaining financial system stability.

Market Failure

A situation occurring when the free market does not allocate resources efficiently, producing undesirable economic or social outcomes.

Negative Externalities

Third-party costs, such as pollution, that can lead to market overproduction.

Positive Externalities

Third-party benefits, such as education, that can lead to market underconsumption.

Public Goods

Goods that are non-excludable and non-rival, which may be underprovided by the free market due to the free-rider problem.

Merit Goods

Socially desirable goods, such as education and healthcare, that may be underconsumed in a free market.

Demerit Goods

Goods such as tobacco or gambling that may be overconsumed in a free market.

Progressive Tax

A tax system in which the proportion of income paid in tax rises as income rises.

Proportional Tax

A tax system in which the same proportion of income is paid regardless of income level.

Regressive Tax

A tax system in which lower-income earners pay a larger proportion of their income than higher-income earners.

Budget Surplus

A budget state occurring when government revenue exceeds government expenditure.

Budget Deficit

A budget state occurring when government expenditure exceeds government revenue.

Balanced Budget

A budget state occurring when government revenue equals government expenditure.