Year 10 HASS - Economics Revision (Full)

Want

Unnecessary for survival

Need

Necessary for survival

Economic Problem

unlimited wants, limited resources aka scarcity

Opportunity Cost

the best alternative forgone when a choice is made.

Land Resources

All resources supplied from the earth (e.g. water, oil, sunlight)

Labour Resources

All resources supplied by humans (e.g. labour, intellect)

Capital Resources

All resources that assist the production of goods + services (e.g. drills, tractors, computers)

Enterprise

Coordination and management of other resources. Ability to combine land, labour and capital to make profit or products.

Microeconomics

Understanding how consumers and producers make decisions. includes theory of Supply and Demand

Macroeconomics

The study of economic performance as a whole, including inflation, employment, total production and economic growth

Relative Scarcity

Resources are scarce compared to society’s unlimited needs and wants.

Trade Off

When something is given up for something else

The three economic questions

What to produce? How to produce? For whom to produce?

Business Cycle

Fluctuations in the economy in terms of output and growth measured by changes in Real GDP every quarter.

What fluctuates in the business cycle?

• GDP, Inflation, Prices

• Consumer Spending, Investment

• Income

• Supply and Demand

• Employment

• Profit

• Consumer Confidence

• Economic Growth

• Production

What happens during a peak?

Peaks see unsustainable growth and demand exceeding supply.

What happens during a recession?

Recessions see income cuts.

What happens during a trough?

Fiscal and monetary intervention required to make GDP grow again.

PPF (Production Possibilities Frontier)

Shows all production possibilities, where each point on the frontier is a way resources can be allocated to producing two different products.

What does the term 'frontier' refer to in economics?

The frontier refers to the maximum possible production of goods with the given resources.

What does it mean if production is below the frontier?

It indicates underemployment of resources.

What does it mean if production is above the frontier?

It is impossible to achieve with the current resources.

Law of Increasing Opportunity Cost

Every additional unit of production of one good requires sacrificing an increasing amount of production of another good

Circular flow of income

Demonstrates the flow of income through an economy.

Leakages

When money exits the economy. This includes consumer savings to financial institutions, taxes to the government, and money given for imports from overseas.

Injections

When money enters the economy. This includes investments from financial institutions, governments spending from the government, and money received from exports sent overseas.

Factor Market

Households give factors of production for income from firms (DR WISP - demand, rent, wages, interest, and profit).

Product Market

Households give money to purchase goods and services from firms.

GDP

Market value of all finished goods and services produced within a country within a year; Only counts products produced that year that won’t be sold again as part of another product.

Nominal GDP

Increases with inflation.

Real GDP

A measure of GDP that controls for inflation by measuring different years with the same prices, eg 1950-2015 w/ 2009 prices.

Real GDP / capita

Real GDP / Population

Standard of Living

Higher Real GDP per capita = better standard of living.

Importance of GDP

GDP indicates the health, size, growth or decline of an economy, as well as helping understand living standards.

Supply

The amount of a product that a producer is willing/able to sell at a given market price.

Demand

The amount of a product that a consumer is willing/able to buy at a given market price.

Law of Supply

Increasing price → Increasing supply

Law of Demand

Increasing price → Decreasing demand

Equilibrium

Q_D = Q_S

Excess / Surplus

Q_D < Q_S

Shortage

Q_D > Q_S

Economics

The field of study of how people allocate their scarce resources to best satisfy their unlimited needs and wants

Opportunity cost

the best alternative given up by making a decision

What can move the PPF?

1. Change in productive resources
2. Technological advancements

What is the formula for GDP?

Consumption + Investment + Government Purchases + Net Exports

Demand shifters

Income, Population, Tastes, Price of Related Goods, Expectations, Expected Future Price

Supply shifters

Technological Innovation, Input Prices, Taxes and Subsidies, Expectations, Entry / Exit of Producers, Changes in Opportunity Costs

Consumer Surplus

What consumers would pay - market price, reflecting consumer benefit

Normal Goods & Inferior Goods

Normal goods: ↑ income → ↑ demand

Inferior goods: ↑ income → ↓ demand

Substitute Products

↑ price → ↑ demand for other good

Complement Products

↑ price → ↓ demand for other good

Movements & Shifts

Movements caused by price, shifts not caused by price

Types of Economic Systems

Traditional, Command, Market, Mixed

Traditional Economy

• People follow customs and make what their ancestors made

• People make goods the same way their ancestors did

• People make things for the community

• Examples include Inuit, Australian Aboriginals and Amazon Rainforest communities.

Command Economy

• Governments make all economic decisions such as distribution of resources and regulation of prices and wages

• Governments decide how/how much to produce

• Governments decide who gets what

• Examples include communist countries (North Korea, Cuba, Vietnam)

Market Economy

• Businesses decide what to make for profit

• Businesses decide how/how much to produce

• Production for consumers

• Pure market economies don’t exist

Mixed Economy

• Businesses decide what to produce

• Businesses decide how much, but government regulates some industries

• Production for consumers

• Examples include USA, Canada, England, Japan and others

How do you draw the 5-sector circular flow of income model?

Households, firms, government, financial intermediaries, overseas. Leakages on the left, injections on the right.