Commerce - Term 3

What are the five sectors of the economy

Households, Firms, Financial, Government, and Overseas

What is the households sector?

Individuals who provide labour, earn wages, buy goods and services, save or borrow money, and pay taxes

What is the firms sector?

All businesses that produce goods and services, employ workers, earn revenue, borrow or save money and pay taxes

What is the financial sector?

Banks and financial institutions that accept savings and lend money to households and businesses

What is the government sector?

National, state and local governments that collect taxes and provide public goods and services

What is the overseas sector?

Australia’s trade with other countries through imports and exports

What does the five-sector circular flow model show?

The movement of money, goods and services between the five sectors of the economy

What are injections into the economy?

Money entering the economy that increases economic activity

What are leakages from the economy?

Money leaving the economy that reduces economic activity

What is globalisation?

The increasing interconnectedness of countries through trade, technology and communication

What is ASIC?

The Australian Securities and Investments Commission

What is ASIC’s role?

To regulate Australia’s financial sector and protect consumers

What legislation does ASIC operate under?

Corporations Act 2001 and National Consumer Credit Protection Act 2009

How does the financial sector help businesses?

By lending money for investment and expansion

What is investment?

Spending money on equipment, buildings or expansion to increase future production

What is the business cycle?

The regular pattern of expansion and contraction in economic activity

What are the two phases of the business cycle?

Expansion and contraction

What happens during expansion?

Production, employment, wages, spending and inflation generally rise

What happens during contraction?

Production, spending and wages fall while unemployment rises

What is a recession?

A decline in economic activity lasting six months or more

What is a depression?

A long and severe recession

What causes a recession?

Insufficient spending by consumers, businesses and governments

List four characteristics of a recessio

• High unemployment

• Low inflation

• Low production

• Low consumer confidence

What is a boom?

A period of rapid economic growth and prosperity

What are the characteristics of a boom?

• High employment

• High production

• Rising wages

• Rising inflation

• High interest rates

What triggered the Great Depression

The 1929 Wall Street Crash (Black Thursday)

Give three impacts of the Great Depression

• Massive unemployment

• Businessfailures

• Bankruptcies and loss of savings

What is demand?

The quantity consumers are willing and able to buy at a given price

What is the law of demand?

As price rices, quantity demanded falls

What is an expansion in demand?

More is demanded because price falls

What is a contraction in demand?

Less is demanded because price rises

Name four factors that increase demand

• Higher incomes

• Population growth

• Better consumer preferences

• Substitute goods more expensive, complimentary goods less expensive

Name four factors that decrease demand

• Lower incomes

• Population decline

• Prices expected to fall in the future

• Substitute goods become cheaper, complimentary goods become more expensive

What is supply?

The quantity businesses are willing and able to sell at a given price

What is the law of supply?

As price rises, quantity supplied increases

What increases supply?

• Improved efficiency

• Lower production costs

• Better weather

• More suppliers

What decreases supply?

• Higher production costs

• Poor weather

• Fewer suppliers

• Lower efficiency

What is market equilibrium?

The point where demand equals supply

What is the price mechanism?

The interaction of demand and supply that determines price and quantity

What is a market?

Any place or situation where buyers and sellers exchange goods or services

What is a retail market?

Markets where consumers purchase goods and services

What is a labour market?

The buying and selling of labour between employers and workers

What is the price of labour called?

Wages or salary

What is the financial market?

The market connecting savers with borrowers

What is interest?

The price paid for borrowing money

What is a share?

A unit of ownership in a company

What is barter?

The exchange of one good for another without using money

What items were commonly traded? (Aboriginal and Torres Strait Islander Trading)

Ochre, shells, stone tools, ceremonial items and food

Why does government intervene to prevent environmental degradation?

To reduce pollution, protect habitats and ensure sustainable economic growth

Why does government conserve natural resources?

To ensure future generations can continue using them

What is an online business?

A business that operates partly or entirely through the internet

What is an on-demand business?

A business using apps and mobile technology to provide convenient serivces

What is a micro business?

Fewer than 5 employees

What is a small business?

5 - 19 employees

What is a medium business?

20 - 199 employees

What is a large business?

200 or more employees

What does SME stand for?

Small and Medium Enterprise

What is a transnational corporation (TNC)

A company operating in many countries

Why do businesses offshore production

To reduce costs such as wages and production expenses

What services do government businesses provide?

Health, education, transport, welfare and infrastructure

What is a not-for-profit business?

An organisation that reinvests all profits into serving the community

How does technology benefit businesses?

• improves efficiency

• Increases productivity

• Reduces costs

• Improves communication

How does a recession affect businesses?

Lower sales, lower profits and possible job losses

Which businesses are least affected during recessions?

grocery stores and discount retailers

What are three benefits of globalisation?

• Larger markets

• Cheaper materials

• Greater access to labour

What are three disadvantages of globalisation

• More competition

• Job losses

• Environmental and ethical concerns

What is an entrepreneur?

Someone who takes risks to start and grow a business

List four qualities of an entrepreneur

• Innovative

• Risk-taking

• Opportunity-seeking

• Problem-solving

What is innovation?

Improving or significantly changing an existing product, service, or process

What is the difference between invention and innovation?

invention creates something completely new, while innovation improves an existing product or process

What is corporate social responsibility (CSR)

Businesses considering social, environmental and stakeholder interests when making decisions

Why is CSR good for business?

It builds customer trust, improves reputation and supports long-term profitability

Barter

The swapping or exchanging of one good for another

Biodiversity

The variety of plant and animal life in the world or a particular habitat

Business cycle

The cyclical fluctuations in the general level of economic activity

Consumption

The purchasing of goods and services to satisfy needs and wants

Depression

A severe contraction in the level of economic activity resulting in many business failures, high and sustained levels of unemployment and sometimes falling prices

Economy

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

Exports

Goods and services sold by local businesses to overseas consumers

Fiscal policy

The use of federal government’s budget to achieve economic objectives

Imports

Goods and services purchased by local consumers from overseas businesses

Inflation

A general rise in prices across all sectors of the economy, causing money to lose its value

Interdependence

A joint dependence between participants in an economy; that is, the reliance of consumers, workers, businesses and governments on each other

Interest

The price that must be paid in order to use someone else’s money

Law of demand

tates that the quantity of a good or service demanded varies inversely to price

Law of supply

States that the quantity of a good or service supplied varies directly with price

Market

Where the exchange of goods, services, or resources between buyers and sellers occurs

Market equilibrium

The point at which the demand and supply curves intersect

Monetary policy

The Reserve Bank using interest rates to achieve economic objectives

Price mechanism

The interaction of the forces of demand and supply that determines the price of a good or service

Production

The creation of goods and services

Recession

A relatively mild contraction in the level of economic activity resulting in reduced spending, rising unemployment and a slow rate of economic growth

Saving

Regularly putting aside some money for future use

Transnational corporation

A large business that has branches in more than one country