Money/Markets Sem 2

Explain the basic economic problem/relative scarcity

A economy's resources are limited when compared to the demands placed upon them. Therefore the basic economic problem is satisfying unlimited wants with only limited resources.

Define opportunity cost/trade off

The value of the tradeoff of the next best alternative option when a choice is made.

Distinguish needs and wants

Needs refer to an individuals basic requirement that must be fulfilled, in order to survive. Whereas, wants are goods and services, which we would like to have to improve an individuals quality of life.

Identify and describe the 4 factors of production

Natural resources: The use of natural resources, such as land, water or animals to create a good or service

Capital resources: The capital goods, or man-made resources, such as tools and infrastructure, used in the production of a good or service.

Labour resources: The mental and physical effort by humans in the production process, such as teachers or engineers.

Entrepreneurial resources: The skills of those individuals who combine the other factors of production to create an enterprise in the creation of a good or service, such as Elon musk.

Explain how the standard of living is measured.

Standard of living is the material well being of the average person in a given population. It is typically measured using gross domestic product (GDP) per capita. GDP per capita is the market value of all goods and services newly produced in a country in one year divided by its population/

What is a production possibility curve

A a curve measuring the maximum combination of outputs that can be obtained from a given number of input. Shows how much of each good will be produced when resources shift. Highlights opportunity cost.

Explain the 2 sector circular flow of income

1. Resources sold by households to business's (Labour, land, capital)
2. Income as payment for the resources from business's to households. (Wages, interest)
3. Expenditure to pay for the goods and services produced by the business's.
4. Production of goods and services to meet needs and wants of households.

Describe the law of demand and supply

Law of demand states that when a price of a good or service decreases, the customer demand increases and vice versa.

The law of supply states that when the price of a good or service increases, suppliers are more willing to supply it and vice versa

Identify the non price factors of demand

1. Peoples income
2. People preferences
3. Price of complementary products
4. Price of substitute products
5. Number of consumers

(SPICN)

Identify the non price factors of supply

1. Cost of inputs
2. Number of suppliers
3. Climatic conditions
4. Levels of productivity
5. New technology

(SPITC)

Equilibrium price

The price where the quantity demanded equals the quantity supplied

Explain expansion and contraction

Expansion is a period of economic growth measured by the rise in GDP

Contraction is a period of economic decline measured by the fall in GDP

Distinguish assets and liabilities

An asset is an economic resource that a business controls whereas a liability is what a business owes.

Whats a non-current asset and a non-current liability

Assets and liability that are not expected to be convertible to cash or be paid off in less than a year.

Whats a current asset and a current liability

Assets and liability that are expected to be convertible to cash or be paid off in less than a year.

Owners equity

Owner's equity is measured by the difference between a company's assets and liabilities and shows and represents the owners investment in the buisness.

Capital

The value of liquid assets that an owner has within a business.

The accounting process

1. Collecting source documents - (Input stage) Where business collects source documents relating to transactions. This provided the evidence that a transaction has occurred.

2. Recording - Where information contained in the source documents must be written down and processed. Recording involves sorting classifying and summarising information contained in the source document.

3. Reporting - (Output stage) Reporting involves taking the information that has been generated from accounting reports and reporting the financial information to the owner in a form they can understand.

4. Advice - Once financial information is presented, the accountants will explain and provide the owner with a range of options to make informed decisions about the financial part of the business.

Statement of receipts

A source document that is used to verify that the business has received cash which can be handwritten or computerised

Key pieces of data needed:

1. The number, date, and time of the purchase.
2. Invoice number or receipt number.
3. The number of items purchased and price totals.
4. The name and location of the business the items have 5. been bought from.
6. Any tax charged.

The accounting equation

Assets = Liabilities + Owner's Equity

Explain the 4 accounting assumptions

Entity assumption - That the business is seperate from the owner and other entities, and it records should be kept on this basis

Understandability - That reports should be presented in a manner that makes it easy for the user to comprehend their meaning

Verifiability - That reports should contain information verified by source document evidence so that its free from bias

Relevance - That financial information must be capable of making a difference in the decisions made by users

GST

GST is a 10% tax on most goods and services sold in Australia, and it has to be collected by registered businesses.

recipt

Used to verify that the business has received cash into their business.

cheque butt

Provides all details required about cash payments

memorandum (memo)

Provide evidence of internal transactions between the business and the owner and does not involve an external party.

cash receipts journal

summarises all cash received by the business (from other entities) during a particular reporting period

cash payments journal

summarises all cash paid by the business (to other entities) during a particular reporting period

sundires

A sundry expense is one that doesn't come up very frequently and doesn't cost very much.

Idenitfy the 3 basic economic questions

1. What to produce
2. How to produce
3. For whom to produce