VCE Economics Unit 3 AOS 1 Notes

A collection of flashcards covering key vocabulary and concepts related to VCE Economics Unit 3 AOS 1.

Relative Scarcity

The basic economic problem arising from finite resources being unable to fulfill infinite needs and wants.

Needs and Wants

Needs are essential goods and services for survival, while wants are goods and services providing utility to satisfy desires.

Factors of Production

The productive inputs required to produce goods and services, including land, labor, and capital.

Opportunity Cost

The value of the most desirable alternative given up as a result of an economic decision.

Trade-off vs Opportunity Cost

A trade-off refers to choosing an alternative, while opportunity cost is the value of the best forgone alternative.

Production Possibilities Frontier (PPF) Diagram

A method to illustrate the different production choices and the concept of opportunity cost.

Allocative Efficiency

Using resources to produce goods and services that maximize the overall satisfaction of society's needs and wants.

Productive Efficiency

Seeking the lowest-cost production methods and minimizing wastage of resources in creating goods and services.

Dynamic Efficiency

The speed at which an economy can reallocate resources to achieve allocative efficiency due to changing consumer needs.

Intertemporal Efficiency

Balancing between satisfying current and future consumption needs.

Material Living Standards

Living standards measured by access to goods and services that satisfy consumers' needs and wants.

Non-material Living Standards

Measured by non-monetary factors reflecting quality of life, such as leisure time and education.

Market

An institution where buyers and sellers negotiate the price for goods and services.

Perfect Competition

A market structure with many buyers and sellers, strong competition, and no market power for individual firms.

Price Taker vs Price Maker

A price maker can influence prices while a price taker cannot.

Price Mechanism

A system using supply and demand forces to achieve market equilibrium for goods and services.

Law of Demand

States that a consumer's willingness and ability to purchase a good varies inversely with price.

Price Elasticity of Demand (PED)

Measures the responsiveness of quantity demanded to a change in price.

Market Equilibrium

The point at which quantity demanded equals quantity supplied.

Surplus

Exists when supply exceeds demand, leading sellers to reduce prices.

Shortage

Exists when demand exceeds supply, leading prices to rise.

Market Failure

Occurs when the price mechanism does not lead to the most desirable economic outcome.

Asymmetric Information

A situation where one party in a transaction has more information than the other.

Public Goods

Non-rivalrous and non-excludable services provided to all members of society, often funded by taxes.

Externalities

The social implications of market decisions affecting third parties, which can be positive or negative.

Government Intervention

Actions taken by the government to correct market failures.