Introduction to Key Economic Concepts and Principles

Economics

Study of choices people make to satisfy their wants _ needs with a limited supply of resources

Economic problem

Peoples needs and wants are unlimited

Production

The process of producing things

Distribution

How products are distributed

Consumption

How we consume goods

Want

Something people desire

Need

Something necessary to live

Good

Physical product we can hold and touch, tangible

Service

An action provided to us, something someone does for us

Scarcity

Having a limited supply of resources to meet the needs + wants of society.

Land

Natural resources

Labour

Human effort, people put to work in the production process

Capital

Machinery, plant + equipment made by people to assist in manufacturing goods + services

Enterprise

Qualities some individuals possess to make them accurately perceive market opportunities + coordinate production process

Entrepreneur

Someone willing to risk opening a business to make money

Economic agents

People who are part of an economy

Economic problem

Human wants are unlimited, resources are scarce

Relative scarcity

The problem of limited resources being available to satisfy unlimited wants

Scarce resources

Water, coal, fossil fuel, caviar

Free resources

Air, oxygen

Opportunity cost

Weighing the benefits and the cost up against each other to determine what the best possible economic choice could be

Explicit costs

Have a dollar value $$$

Implied cost

You consider what you gain/lose using time and resources differently

Cost Benefit Analysis

Involves making a list of the costs and benefits, then comparing them to reach a decision

Net Benefit

When the benefits outweigh the costs

Net Benefit

If two options occur, the one with the greatest net benefit is the best choice.

Households

Provide resources needed for the production of goods and services, then buy goods and services produced by businesses.

Business

Buy resources from households, then turn them into goods and services via production process.

Expenditure

The total value of the spending on all goods and services that have been produced.

Exports

Goods and services produced in Australia, and sold to other countries.

Financial Sector

Banks and other financial institutions.

Firms Sector

Businesses in the economy.

Government Expenditure

Money the government spends on public goods and services.

Government Sector

The national state and local government.

Imports

Goods and services produced by businesses in other countries and sold to Australia.

Income

Money received e.g. wages, rent and interest.

Investment

Money the financial sector lends to firms to spend on machinery, buildings and equipment.

Output

Goods or services produced to be sold.

Overseas Sector

The economic transactions of the economy with the rest of the world e.g. how resources flow between Australia and its trading partners.

Savings

Money saved.

Taxation

Money paid to the government.

Primary Sector

The part of the economy that contains industries that either extract or produce raw materials such as coal, wood etc.

Secondary Sector

The part of the economy that contains industries that transform the raw materials and components into goods.

Tertiary Sector

The part of the economy that contains industries that supply services to businesses and consumers.

Quaternary Sector

The knowledge based part of the economy that trades in information services.

Three Basic Economic Questions

1. What to produce?, 2. How to produce?, 3. For whom to produce it?

Consumer sovereignty

the consumer is in charge when it comes to deciding where resources are allocated in a market economy

Free market economy

consumers decides limited resources use

Demand

the desire consumers have for a good or service

Supply

the total amount of a good or service available for consumption

Shortage

a market situation where the quantity demanded is greater than the quantity supplied and the market is not in equilibrium

Surplus

a market situation where the quantity supplied is greater than the quantity demanded, the market is not in equilibrium

Resource allocation

the way in which land, labour, capital and enterprise are used to satisfy what to produce, how to produce and for whom to produce

Price mechanism

has a role in the distribution of wealth, through the generation of profits and wages for success suppliers in markets where there is demand

Demand factors

price of the property, income of buyers, preferences, price of substitute properties, prevailing tax regime, expectations

Supply factors

price of property, price of other properties/investments, price of inputs, sellers own circumstances

Government intervention

Governments may intervene in certain markets to increase the number of satisfied customers

Healthcare access

Government makes sure all Australians have access to healthcare

Tax collection

Government collects taxes to pay for healthcare, education etc.

Market equilibrium

a situation where the quantity demanded equals the quantity supplied

Price elasticity

the responsiveness of demand or supply to changes in price

Opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen

Market failure

a situation in which the allocation of goods and services is not efficient

Externalities

costs or benefits that affect a party who did not choose to incur those costs or benefits

Public goods

goods that are non-excludable and non-rivalrous, meaning they are available for all to consume

Merit goods

goods that are deemed beneficial for individuals and society, often under-consumed

Demerit goods

goods that are considered harmful to individuals and society, often over-consumed