HASS10 Economics

Economic Development and Wellbeing

• Countries can be classified according to level of economic wealth and development into:

  • More Economically Developed Countries: Wealthier, higher living standards

  • Less Economically Developed Countries: Poorer, lower standards of living.

Wellbeing

• ability of people to access the things they need to live happy lives.

• Eg

  • Fresh water

  • Food

  • Clothing

  • Shelter

  • Safety

• strong correlation between economic growth and wellbeing.

Gross Domestic Product (GDP)

• total monetary value of all final goods and services produced in a country in one year.

• commonly used to measure a country's level of economic development.

• Generally, higher GDP, more developed

• However, GDP should not be the only measure bc a country can have a high GDP but still be considered developing (e.g. China).

GDP per Capita

• calculated by dividing GDP/population.

• estimates the average amount of wealth for each person.

• better indicator of economic development than GDP

Employment by Economic Sector

• percentage of workers employed in diff sectors indicates country's development.

• Primary sector- industries that produce raw materials:

  • Farming

  • Fishing

  • Forestry

  • Mining

• Less developed countries usually have most workers in the primary sector.

• More developed countries have more workers in:

  • Secondary industries: Manufacturing

  • Tertiary industries: Services

Demographic Indicators

• measure characteristics of a country's population.

• used to assess development.

  • Calorie intake

  • Life expectancy

  • Education

  • Medical facilities

Calorie Intake (Diet)

• measures daily nutrition.

• Developed countries- have higher, Developing countries- lower calorie intake.

• The average adult requires around 2,000 calories per day.

Life Expectancy

• predicted number of years a person is expected to live.

• Developed countries usually higher, Less developed countries generally lower life

• Women in developing countries- lower life expectancy than men bc childbirth deaths

Education

• High school and uni enrolments- much greater in developed nations.

• In many developing countries:

  • Female students are often outnumbered by males.

  • Cultural beliefs may see women's role primarily as homemakers.

Medical Facilities

• generally much better in developed countries. have

  • More doctors

  • Better hospitals

  • More advanced healthcare

• Less developed countries have fewer doctors and less advanced hospitals.

  • Australia: 1 doctor per 244 people

  • South Sudan: 1 doctor per 23,000 people

Economics

the study of how individuals, businesses, governments and societies allocate scarce (limited) resources to satisfy needs and wants.

needs

• essential for survival.

• limited

  • Food

  • Water

  • Shelter

  • Clothing

wants

• not essential for survival.

• Wants are unlimited.

• improve comfort and quality of life.

  • Cars

  • Computers

  • Mobile phones

• Vary from individuals, societies, age

• Change over time.

• Can reoccur.

• May generate another want.

  • Eg- Buying a car creates the need for fuel.

Economic Problem

• Human wants are unlimited.

• Resources are limited.

• Therefore, people and societies must make choices about how resources are used.

• It is fundamentally a problem of choice.

Factors of Production

resources.

• Inputs used to produce goods and services.

• Four factors:

  1. Land- natural resources, the land and everything that comes from it

  2. Labour- work, physical- manual bricklayer, intellectual- mental, doctor

  3. Capital- machinery/equipment used- oven

  4. Enterprise - ability organise other factors, to maximise profit, efficiency

Law of Supply/ Law of Demand

Consumers generally aim to buy goods and services at the lowest price, producers aim to sell at the highest price

Law of Demand- as price of a good or service decreases, demanded increases.

Law of Supply -as the price of a good or service increases, quantity supplied increases.

Goods and Services

Goods- tangible items, cars

Services- actions that generally benefit consumer, doctors

Relative Scarcity

• there is not enough of a good, service or resource compared to demand.

• Occurs bc

  • Wants are unlimited.

  • Resources are limited.

• Greater scarcity= higher prices.

Opportunity Cost

• the next best alternative given up when making a choice.

• refers to the potential benefits missed when choosing one option over another.

Microeconomics**************

• study of individual consumers, households and businesses and how they make decisions about using limited resources.

• focuses on individual markets and topics such as:

  • Supply and demand

  • Pricing

  • Competition

  • Consumer behaviour

• Businesses use to make decisions about pricing, production and marketing.- determined by the interaction between buyers and sellers in a market.

Macroeconomics

• studies the economy as a whole, national and global economic performance. large-scale issues such as:

• Economic growth

• Inflation

• Unemployment

• Interest rates

• International trade

• Govs and central banks use info to develop policies that keep economy stable- manage inflation, employment and economic growth.

• Eg: During recession, gov may increase spending on roads, creating jobs

Circular Flow of Income Model

• explains the interactions between sectors

• highlights how money and resources move through the economy and maintain economic stability and growth.

Role of Households

Households:

• Represent consumers.

• Own the factors of production:

  • Labour

  • Land

  • Capital

  • Enterprise (entrepreneurship)

• Provide these factors of production to firms.

• Receive income in return.

• Spend their income on goods and services.

Role of Firms

Firms:

• Produce goods and services.

• Use the factors of production supplied by households.

• Pay households:

  • Wages

  • Salaries

  • Rent

  • Interest

  • Dividends

• Sell goods and services to households.

• Receive revenue from these sales.

Real flow

represents the physical movement of:

• Factors of production from households to firms.

• Goods and services from firms to households.

Monetary flow

represents the movement of money:

• Households receive income for providing factors of production, spend income on goods and services.

• Firms receive revenue from sales, use to pay households for factors of production.

Financial Sector

includes:

• Banks

• Insurance companies

• Superannuation funds

• Australian Securities Exchange (ASX)

links by allowing funds to flow

helps with the efficient allocation of resources

Households:

• Save part of their income in financial institutions.

Firms:

• Borrow money for investment.

Government Sector

• Collects taxes

• Provides public goods and services-

  • Infrastructure

  • Education

  • Security

• Makes transfer payments

• Creates additional flows of money

Overseas sector

Exports

• GS sold by Aus businesses to overseas consumers.

• bring money in

Imports

• GS purchased by Aus from overseas producers.

• money leave Aus

affects:

• Exchange rates.

• Global economic connections.

Leakages, Injections and Equilibrium

• Leakages- remove money

  • Savings- reduce spending

  • Taxes

  • Imports

• Injections- add money

  • Investment:

  • Government spending: infrastructure

  • Exports:

• Equilibrium when leakages equal injections

Business Cycle

• shows the rise and fall of real Gross Domestic Product (GDP) over time.

  1. Expansion

  2. Peak

  3. Contraction

  4. Trough

• affect:

  • Employment

  • Consumer spending

  • Business investment

  • Wages

  • Inflation

Australia's Long-Term Economic Growth, ABS and Financial Year

• Aus productive capacity averaged- 2.5–3%

• The Australian Bureau of Statistics measures Australia's GDP.

• generally reports GDP figures quarterly- every three months.

• financial year runs from 1 July to 30 June of the following year.

Expansion

• economy grows.

• Households spend more

• Businesses increase production to meet higher demand

• Unemployment decreases.

• Wages generally increase

• Prices rise bc high demand

• Consumer confidence high.

• Spending and investment grow.

• usually the longest phase

Peak

• highest point of economic activity before growth begins to slow.

  • economy operates close to its maximum productive capacity.

  • Employment high.

  • string business profit

  • high spending

  • Inflationary pressures

• To control inflation, RBA may increase interest rates to reduce spending.

Contraction

• downswing of the business cycle towards a trough

  • Economic activity declines.

  • Households reduce spending.

  • Businesses experience lower sales, reduce production

  • Investment decreases

  • Unemployment rises.

  • Wage growth and inflation slows.

Trough

• lowest point

  • Economic activity is at its weakest.

  • low spending

  • Business investment is reduced.

  • Unemployment high.

• marks the beginning of economic recovery.

Economic boom

• economy grows at an unusually fast rate for an extended period.

  • Output increases rapidly.

  • Employment, income, spending increases.

• Although creates prosperity, can also cause excessive inflation

Recession

• when economic growth falls for two or more consecutive quarters (six months or more).

  • Household incomes fall.

  • Unemployment and business failures increases

• Govs and central banks often take action to support economic recovery.

Depression

• more severe

• usually lasts two years or more.

  • Large fall in economic activity.

  • Very high unemployment.

  • Widespread business failures.

  • Long-lasting economic hardship.

• rare but much greater impacts than recessions.

Economic Growth

• an increase in the productive capacity of an economy.

• occurs when a country's real GDP increases.

• means more goods and services are produced over time.

Growth Rate =

GDP Current Year - GDP Previous Year/GDP Previous Year. ×100

Real GDP

• is the total market value of all final goods and services produced in an economy after adjusting for inflation.

• a more accurate measure of economic growth bc inflation has been removed.

• If increases: economy is growing.

• If decreases:contracting.

• should be considered alongside broader indicators of social and environmental wellbeing.

Importance of Economic Growth

• Improves living standards.

• Creates employment

• Increases household incomes.

• Generates gov revenue.

• Allows gov to fund public services.

Advantages of economic Growth

• Raises national income.

• households to receive higher wages, improved living standards.

• Reduces unemployment.

• Increases consumer spending, gov tax revenue.

• Allows gov invest more in:

  • Infrastructure

  • Education

  • Healthcare

  • Social welfare

• Encourages business investment, tech innovation, productivity improvements.

• Makes firms more competitive

Disadvantages of Economic Growth

Can

• pressure on natural resources.

• environmental degradation.

• pollution.

• climate change

• increase income inequality

• inflation

• urban congestion.

• increase housing costs.