Economics Exam

Climate Change

Climate Change refers to the changing weather patterns and more specifically an increase in severe weather events.

Deforestation

Deforestation is the clearing of land. It contributes to climate change by reducing the absorption of carbon dioxide and releasing stored carbon into the atmosphere. Other consequences include loss of biodiversity and desertification.

Climate Change and Fossil Fuels

Australia is a major producer and exporter of fossil fuels. The production and use of fossil fuels contributes to greenhouse gas emissions and climate change. Around one quarter of Australia's export earnings are generated from fossil fuels.

Global Warming

Global warming is a related concept – it is the rise in general temperature levels throughout the world.

Climate Refugees

Climate refugees are people who are displaced from their homes due to the impacts of climate change, including extreme weather events and rising sea levels.

Negative Externalities

Negative externalities occur when the production or consumption of goods and services imposes costs on third parties not involved in the transaction. Pollution from fossil fuel use is an example.

Excludable

Excludable refers to the ability to restrict access to a product to only those who pay for it

Depletable

Depletable means that if one economic agent consumes a product, it is no longer available for others to consume.

Carbon Tax

A carbon tax is a tax imposed by the government on greenhouse gas emissions to reduce pollution by increasing the cost of activities that produce emissions

Emissions Trading Scheme (ETS)

An emissions trading scheme requires participants to obtain permits from the government to emit greenhouse gases.

Emissions Reduction Fund (ERF)

The Emissions Reduction Fund is an Australian government program that provides funding for projects that reduce greenhouse gas emissions or store carbon

Long term economic prosperity

Economic prosperity refers to wealth and is achieved through economic growth. Long term economic prosperity refers to providing future generations with high economic growth.

Environmental Sustainability

Involves the preservation of the natural environment into the future ensuring that current practices do not contribute to environmental harm and reduction of natural resources where they are either unavailable for future generations, or insufficient quantities.

Carrying Capacity

Refers to the maximum size of a population that an area will support without undergoing deterioration.

Renewable and non-renewable natural resources

The resource type most relevant to sustainability is natural resources. Classified as:

Renewable -  resources are that can be easily replenished (wind, sun).

Non-renewable – resources those that once used are no longer available.

Tragedy of the Commons

The tragedy of the commons occurs when individuals acting in their own self-interest overuse a shared resource, causing it to become depleted or unavailable for society as a whole.

Tragedy of the Commons link to Climate Change

Climate change is an example of the tragedy of the commons because individual economic agents contribute to greenhouse gas emissions, creating costs for all members of society.

Why is Climate Change Important - Local Importance

Climate change affects local communities through more frequent extreme weather events, including bushfires, floods and droughts, which damage homes, businesses, infrastructure and natural resources.

Why is Climate Change Important- National Importance

Climate change reduces Australia's living standards by damaging natural and capital resources, destroying crops, increasing prices, reducing tourism and requiring significant government spending on disaster relief.

Why is Climate Change Important - International Importance

Climate change is a global issue because greenhouse gas emissions contribute to worldwide temperature increases, extreme weather events, rising sea levels and population displacement through climate refugees.

Greenhouse Gas Emissions

Greenhouse gas emissions are a key indicator used to measure the extent of climate change and environmental sustainability.

Greenhouse Gas Emissions Per Person

Greenhouse gas emissions per person compare a country's emissions relative to its population and can be used to assess environmental performance.

Carbon Dioxide (CO2) Emissions

Carbon dioxide emissions are a major contributor to climate change and are commonly produced through the burning of fossil fuels.

Market Failure

Market failure occurs when markets do not allocate resources efficiently, resulting in a less-than-optimal allocation of resources.

Link to Climate Change: Market failure can lead to excessive consumption of fossil fuels, overuse of natural resources, deforestation, biodiversity loss and environmental damage.

Externalities

Externalities occur when the production or consumption of goods and services creates spillover effects on third parties who are not involved in the transaction.

Negative Externalities

Negative externalities occur when third parties experience costs from production or consumption decisions, such as pollution created by fossil fuel use.

Common Access Resources (CAR)

Common access resources are resources that are difficult to exclude people from using, such as fisheries and clean air.

Link to Climate Change: Because people can access these resources without paying, they are often overused, contributing to environmental degradation.

Free Rider Problem

The free rider problem occurs when individuals benefit from a resource without paying for it, reducing incentives to protect or sustainably manage the resource.

Economic Growth

Economic growth is an increase in the amount of production in an economy, measured by growth in real GDP over time.

Link to Climate Change: Economic growth can increase fossil fuel use, resource depletion and greenhouse gas emissions as businesses and households consume and produce more goods and services.

Productive Efficiency

Productive efficiency occurs when the highest level of output is achieved from available resources.

Allocative Efficiency

Allocative efficiency occurs when resources are allocated to produce the combination of goods and services that provides the highest level of satisfaction for society

Intertemporal Efficiency

Intertemporal efficiency occurs when resources are optimally balanced between current and future generations.

Link to Sustainability: Climate change and resource depletion reduce intertemporal efficiency because they leave fewer resources and greater environmental challenges for future generations.

Households Perspectives

Households benefit from affordable energy, transport and consumer goods that rely on fossil fuels, but are negatively affected by rising costs, environmental damage and reduced living standards caused by climate change.

Business Perspective

Businesses often rely on fossil fuels for production and transport because they reduce costs and improve profits, but climate change can increase costs through extreme weather events, damaged infrastructure and disrupted operations.

Government Perspective

Governments must balance economic growth and employment with the need to address climate change and protect living standards now and into the future.

Developing Countries Perspective

Developing countries are often among the most severely affected by climate change because they rely heavily on primary industries, have lower incomes and possess fewer resources to respond to natural disasters.

Impact on Material Living Standards

Climate change lowers material living standards through loss of income, destruction of resources, reduced production, higher prices and lower economic growth.

Impact on Non-Material Living Standards

Climate change lowers non-material living standards through stress, displacement, food insecurity, family separation and reduced wellbeing, pollution and environmental issues.

Global Equity

Global equity refers to fairness between countries and asks whether those contributing most to climate change are experiencing the greatest impacts.

Intergenerational Equity

Intergenerational equity refers to fairness in resource use between current and future generations.

Extreme Weather Events - Impacts on AUS Economy

Climate change increases the frequency and severity of bushfires, floods and droughts, damaging resources, reducing agricultural production and increasing prices

Tourism - Impacts on AUS Economy

Climate change threatens Australia's tourism industry through damage to natural attractions such as the Great Barrier Reef, reducing tourism demand, employment and export income.

Government Expenditure - Impacts on AUS Economy

Climate change increases government spending on disaster relief and recovery, creating an opportunity cost because funds could otherwise be used for areas such as education and training.

Paris Agreement

The Paris Agreement is a global agreement under the United Nations framework through which countries commit to reducing greenhouse gas emissions and addressing climate change.

Safeguard Mechanism

The Safeguard Mechanism is Australia's principal policy for reducing greenhouse gas emissions from the country’s largest industrial facilities. It aligns with the Australian Government’s emissions reduction targets of 43% below 2005 levels by 2030 and net zero by 2050.

Under the scheme, responsible emitters must keep their facility’s net emissions below a legislated baseline, which declines steadily over time. Responsible emitters are companies and entities with operational control of greenhouse gas emitting facilities. 

Labour Market

The labour market is a market for labour services where buyers and sellers of labour come together to exchange labour for wages or salaries. Demand for labour comes from employers, while supply of labour comes from workers

Demand for Labour

Demand for labour refers to the willingness and ability of employers, including businesses and governments, to hire workers at different wage rates

Supply of Labour

Supply of labour refers to the willingness and ability of workers to offer their labour services at different wage rates.

Labour Market Equilibrium

Labour market equilibrium occurs when the wage rate is at a level where the quantity of labour demanded equals the quantity of labour supplied.

Employed

A person aged 15 years or over is classified as employed if, during the reference week, they worked at least one hour for pay, profit, commission or payment in kind, worked unpaid in a family business or farm, or had a job but was temporarily absent from work. [U2AOS2 PP...our Market | PowerPoint]

Why People Work

People work to earn income and purchase needs and wants. Work also provides opportunities for creativity, social interaction, purpose and fulfilling mutual obligations.

Factors Increasing Demand for Labour

Demand for labour increases when labour productivity rises, non-wage labour costs fall, production increases, or the price of substitute factors of production such as capital increases.

Factors Increasing Supply of Labour

Supply of labour increases when non-financial benefits of work increase, non-financial costs of work decrease, wages in competing labour markets fall, net overseas migration rises, entry restrictions are reduced, or technology improves access to work.

Labour Force

The labour force consists of all employed and unemployed people in the economy.

Unemployed

A person aged 15 years or over is classified as unemployed if they did not have a job during the reference week, were actively looking for work and were available to start work.

Hidden Unemployment

Hidden unemployed are people who are willing to work and would accept a job but are not counted in the labour force because they have stopped actively looking for work.

Participation Rate

The participation rate measures the percentage of the working-age population that is either employed or actively seeking and available for work.

Formula:
Participation Rate = Labour Force ÷ Population Aged 15+ × 100

Unemployment Rate

The unemployment rate measures the percentage of people in the labour force who are unable to find work.

Formula:
Unemployment Rate = Unemployed ÷ Labour Force × 100

Underemployment Rate

The underemployment rate measures the percentage of the labour force that is underemployed.

Formula:
Underemployment Rate = Underemployed ÷ Labour Force × 100

Underutilization Rate

The underutilisation rate measures labour resources that are available but not being fully used in the production process.

Formula:
Underutilisation Rate = Unemployment Rate + Underemployment Rate
or
(Unemployed + Underemployed) ÷ Labour Force × 100

Cyclical Unemployment

Cyclical unemployment is unemployment caused by a lack of aggregate demand. When aggregate demand falls, businesses reduce production and require fewer workers, resulting in unemployment. Cyclical unemployment is associated with downturns in the business cycle.

Aggregate Demand

Aggregate demand measures the total spending on Australian-made goods and services.

Formula:
AD = C + I + G + (X − M)

Factors Causing Cyclical Unemployment

Cyclical unemployment can result from falling consumer confidence, slower economic growth in trading partners, higher interest rates, or changes in the exchange rate that reduce aggregate demand.

Natural Unemployment

Natural unemployment is unemployment that exists even when aggregate demand is strong and arises from structural, seasonal, frictional and hard-core factors.

Natural Rate of Unemployment (NAIRU)

The natural rate of unemployment, also known as the non-accelerating inflation rate of unemployment (NAIRU), is the rate of unemployment that exists when full employment is achieved.

Full Employment

Full employment occurs when unemployment cannot fall further without generating excessive inflation through rising wages and production costs.

Structural Unemployment

Structural unemployment occurs when the skills possessed by workers do not match the skills required by employers. It is often caused by technological change, changing consumer preferences and outsourcing.

Seasonal Unemployment

Seasonal unemployment occurs when workers' skills are only required during certain times of the year and economic activity is limited to a particular season.

Hard-Core Unemployment

Hard-core unemployment occurs because individual characteristics make it difficult or impossible to gain employment. These characteristics may include a criminal record, drug addiction, mental illness, physical disability or a lack of desire to seek work

Frictional Unemployment

Frictional unemployment occurs when people are temporarily unemployed while moving between jobs, entering the workforce or searching for suitable employment.

Cyclical Unemployment

Cyclical unemployment is unemployment caused by a lack of aggregate demand (AD). When AD falls, businesses reduce production and require fewer workers, causing unemployment. Cyclical unemployment is associated with downturns in the business cycle.

Impact of Unemployment

Unemployment can reduce income and living standards for individuals, increase social problems, reduce business sales and profits, lower economic growth and increase government welfare spending

Labour Market Equilibrium Graph

The equilibrium wage rate (We) occurs where labour demand equals labour supply and the quantity of labour demanded equals the quantity supplied

Wage above Equilibrium

When wages are above equilibrium, there is an excess supply of labour resulting in unemployment. Workers compete for jobs and downward pressure is placed on wages.

Wage below Equilibrium

When wages are below equilibrium, there is an excess demand for labour. Businesses compete for workers, placing upward pressure on wages.

Labour Market Indicators

Labour market indicators are statistical measures used to assess labour market performance, including employment, unemployment, participation, underemployment and underutilisation.

Importance of Employment

Employment is important because it provides income for individuals, supports consumer spending, improves living standards, increases business production and reduces government welfare expenditure.

Casualisation, Outsourcing and the Gig Economy

Australia's labour market has experienced growing casualisation, outsourcing and participation in the gig economy, leading to changes in the nature of employment.

Changing Labour Force Participation

Australia's labour market has experienced changing participation rates among men and women over time

Wage Inequality and Gender Pay Gap

Wage inequality refers to differences in earnings between workers, while the gender pay gap refers to differences in average earnings between men and women.

Migration and Population Growth

Migration and population growth influence the size and composition of Australia's labour force.

Unionisation

Changes in union membership and union influence have contributed to changes in Australia's labour market.

Ageing Population

An ageing population changes the composition of the labour force and can affect labour market participation and workforce availability.

Human Capital Policies

Human capital policies aim to improve the education, skills and productivity of workers.

Stimulus Policies

Stimulus policies are government measures designed to increase economic activity and employment.

Workforce Australia

Workforce Australia assists people in finding employment and helps connect workers with employers

Fair Work Act

The Fair Work Act establishes workplace rights and regulates employment conditions in Australia

Minimum Wage

The minimum wage is the lowest legal wage rate employers can pay workers.

Unfair Dismissal

Unfair dismissal occurs when an employee's employment is terminated in a harsh, unjust or unreasonable manner

Immigration Policy

Immigration policy influences the supply of labour by affecting the number and characteristics of people entering Australia's workforce

Universal Basic Income (UBI)

Universal basic income is a policy proposal under which individuals receive a regular income regardless of their employment status.

Aggregate Demand

is the sum or total value of all spending or demand on final (finished) goods and services produced by a nation and measured over a period of time. It is represented by the formula: Aggregate demand = C + I + G1 + G2 + X – M

Relationship Between the Business Cycle and Economic Indicators

Economic indicators help track movements in the business cycle. Leading indicators predict changes, coincident indicators show current economic conditions and lagging indicators confirm changes that have already occurred.

Economic Activity

The production, distribution and consumption of goods and services within an economy.

Aggregate Supply

is the total value of goods and services produced in Australia and available to a particular market

Circular Flow Model

Aggregate Supply Inputs

• Labour (efforts of workers to produce g&s)

• Capital (inputs that can measured and not labour - the tools used to produce g&s - machinery, buildings etc.)

• Productivity (everything apart from labour and capital used to produce g&s) any inputs can't be measured i.e. innovation and how efficiently inputs are turned into outputs.

Aggregate Demand - Graph

Total willingness of everyone in the economy to purchase g&s (sum of individual demand curves)

Downward sloping - willing to purchase more when the price is lower.

Aggregate Supply - Graph

Total willingness of everyone in the economy to produce g&s (sum of individual supply curves)

Upwards sloping - willing to produce more if you can sell at a higher price.