economics unit 3/4 vce

relative scarcity

unlimited wants meeting limited resources

opportunity cost

the value of the next best option given up

price productivity curve ppc

a graph showing the maximum combination of two goods and economy can produce with all resources used

technical efficiency

producing goods at the lowest average cost

allocative efficiency

allocating resources to produce the goods society wants most

dynamic efficiency

how quickly an economy reallocates resources when consumer demand or technology changes

intertemporal efficiency

balancing current resource consumption with savings for future generations

law of demand

as price goes up, quantity demanded goes down

law of supply

as price goes up, quantity supplied goes up

law of supply

as price goes up, quantity supplied goes up

price elasticity of demand ped

how sensitive buyer demand is to a change in price

market failure

when free markets fail to allocate resources efficiently causing lost social welfare

negative externality

unintended spillover cost on innocent third parties

material living standards

consumers ability to access goods and services measured by real gdp per capita

non material living standards

consumers intangible well being and quality of life not measured by capital

strong and sustainable economic growth sseg

3-3.5% real gdp growth per year without triggering inflation or environmental harm

full employment target

NAIRU around 4-4.5% unemployment where there is zero cyclical unemployment

low and sable inflation target

cpi inflation kept between 2-3% per year on average over time

aggregate demand formula

total spending in the economy AD=Consumer spending+Investing+Government spending+(eXports-iMports)

headline vs underlying inflation

headline includes all price changes, underlying removes volatile items to show core trends

terms of trade

the relative price of Australia’s export prices compared to import prices export index/ import index*100

current account deficit cad

when total spending sending money overseas exceeds total income coming into Australia

Net foreign debt

total money Australia owes overseas minus money owed to Australia from abroad

stance of monetary policy

the rba setting the cash rate low to stimulate growth, high to cool down inflation

neutral cash rate

an interest rate setting around 3-3.5% that neither speeds up or slows down economic growth

budget deficit vs surplus

deficit is spending more than earning whereas surplus is earning more than spending

automatic stabilizers

built in budget features that automatically smooth economic high and lows

bracket creep

inflation pushing workers pay into higher tax bracket without increasing actual purchasing power

aggergate supply policies

government policies designed to increase productive capacity, lower business costs, and boost overall efficiency