Economic and Business Environment

What is the five-sector circular flow model

The five-sector circular flow model shows how money, resources, goods and services move between homes, business, financial sectors, the government and overseas sectors

The role of homes in the five-sector circular flow model

Consume goods and services and supply labour.

The role of businesses in the five-sector circular flow model

Produce goods and services, employ workers and earn revenue.

The role of financial sectors in the five-sector circular flow model

Banks and other institutions provide loans and manage savings and payments.

The role of the government in the five-sector circular flow model

Collects taxes, regulates businesses and provides public services.

The role of overseas sectors in the five-sector circular flow model

Involves imports, exports and international investment.

What is the business cycle

The business cycle is the pattern of economic growth and decline over time.

What are the four stages of the business cycle?

Expansion, peak, contraction trough

In the business cycle, what is the expansion?

Production, employment and spending generally increase.

In the business cycle, what is the peak?

Economic activity reaches a high point.

In the business cycle, what is the contraction?

Production, spending and employment may decline.

In the business, cycle what is the trough?

Economic activity reaches a low point before possible recovery.

GDP

Value of final goods and services produced within a country over a period.

Recession

A significant period of declining economic activity.

Supply

Quantity producers are willing and able to sell at different prices.

Demand

Quantity consumers are willing and able to buy at different prices.

Equilibrium

Where quantity demanded equals quantity supplied

Shortage

Demand exceeds supply, creating upward pressure on prices

Surplus

Supply exceeds demand, creating downward pressure on prices

Perfect competition

Many sellers, similar products and little individual price control

Monopoly

One dominant supplier

Oligopoly

A few dominant suppliers

Monopolistic competition

Many sellers offering differentiated products

Government Intervention

Any action taken by a government to influence or alter how a free market operates, shifting economic outcomes away from pure supply and demand

Subsidy

Financial assistance that may lower production costs (example: Child Care Subsidy)

Fiscal policy

The government’s use of spending and taxation to influence the economy

Monetary policy

The RBA's use of interest rates to influence economic activity and control inflation.tralia (RBA), to manage the money supply and influence interest rates.

Sole trader

One owner; simple to establish but generally unlimited personal liability

Partnership

Two or more owners; shared skills and responsibilities but possible disputes and personal liability

Company

Separate legal entity; shareholders generally have limited liability

Franchise

Uses another business's brand and system; receives support but pays fees and follows rules

Cooperative

Owned and operated for members' benefit

Social enterprise

Trades to achieve social or environmental goals

What are internal factors that affect a business?

Things within a business that affect its performance, such as management, employees, finances and equipment.

What are external factors that affect a business?

Things outside a business that affect its performance, such as the economy, laws, technology and competition.

What is corporate social responsibility (CSR)?

A business considering its social, environmental and economic impacts.

What are stakeholders?

Groups affected by or able to influence a business.