Year9 - T4

Economics

Scarcity

unlimited wants and needs, but limited resources

Choice

the ability of a consumer or producer to decide which good, service or resource to purchase or provide from a range of possible options

Factors of production

land, labour, capital and enterprise

Land

natural resources of all kinds used in the production of a good or service (coal, steel, plastic, electricity, water)

Labour

the physical and mental effort used by people used in the manufacture of a good or service (a skilled worker will work more efficiently than a worker on their first day)

Capital

the real assets of a company used in the production of a good or service (buildings, tools, vehicles, technologies)

Enterprise

the accumulated knowledge and drive of human beings (discoveries, human creativity)

Opportunity Cost

Opportunity cost is the value of the next best thing you give up whenever you make a decision

Circular Flow

a model is a simplified version of something that actually exists

The household sector

the household sector consists of all individuals in the economy who earn income (i.e. wages, rent, interest and profit) by selling productive resources (i.e. land, labour, capital and enterprise) to the firms sector. With the money income earnt, households purchase goods and services from the firms sector to satisfy their needs and wants and improve or maintain their standard of living.

The business/firms sector

the firms sector consists of all private business enterprises in the economy which produce and distribute goods and services to consumers. Firms buy productive resources (i.e. land, labour, capital and enterprise) from the household sector and make factor income payments (i.e. wages, rent, interest and profits) in return for the use of these resources. Firms attempt to maximise profits from their production activities by minimising their production costs and maximising their revenue from the sale of goods and services.

The banking/finance sector

the finance sector consists of all financial institutions (i.e. banks and non-bank financial intermediaries or NBFis) who engage in the borrowing and lending of money and the sale and purchase of financial assets and services to firms and households. Financial institutions attempt to maximise profits by charging a higher rate of interest to borrowers than they pay to the public for depositing funds.

The government sector

The government sector consists of the economic activities of local, state, territory and federal governments in Australia. Governments raise revenue through taxes, rates, fees and charges, and the profits of public trading enterprises (PTEs). They use this revenue to provide collective goods and services to the community such as law and order, defence, education, health, social security and community services.

The overseas sector

The overseas sector consists of the exporters and importers of goods and services from the rest of the world. Trade flows refer to exports of goods (e.g. wool, wheat, iron ore, coal and natural gas) and services (e.g. freight, insurance, education and tourism) sold by Australian firms to foreigners, and imports of goods (e.g. food, beverages, cars, machinery) and services (e.g. freight, insurance and education).