Economics Lecture Notes

• $18 million$ for a new national elder support program.

Government Intervention in the Economy

• Taxation generates revenue for the government, which is then used to spend on buildings, roads, teachers, nurses, defence, etc.

• Learning intentions include understanding the government's role in intervening in the market and minimising negative externalities.

• Success criteria involve defining public goods, negative externality, and positive externality, and explaining the government's role in the economy.

Vocabulary: Positive Externality

• A positive externality occurs when a third party benefits from something an individual or business does.

• Example: A lovely garden increasing the value of a neighbour’s property.

Vocabulary: Negative Externality

• A negative externality occurs when an individual or business does something that harms or causes problems for a third party without compensating for the negative effects.

• Example: A smoker causing harm to others through second-hand smoke, without paying their medical bills.

Categorizing Externalities

• Examples of positive externalities Include Immunization/Vaccination, Electric Cars, Education, and Public Art Installations.

• Examples of negative externalities Include Noise Pollution, Air Pollution, and Alcohol.

• Understanding the Lorenz Curve and its relationship to the Gini Coefficient.

• Explaining how income inequality is measured by creating a Lorenz Curve.

• Identifying how the Gini Coefficient is calculated.

Definitions

• Income: Money earned regularly for work or investments.

• Wealth: Total value of accumulated assets owned at a point in time.

• Income and wealth are not distributed equally among the population; income distribution is asymmetric.

• Income inequality and wealth inequality refer to this uneven distribution.

• Income inequality often leads to wealth inequality, as those with higher incomes can save and invest more easily.

Income Inequality

• Income inequality refers to the uneven distribution of income among a population.

• In Australia, the gap between the rich and everyone else has been growing for over 30 years.

• Those with higher incomes are more able to save and invest, growing their wealth faster, leading to wealth inequality.

Lorenz Curve

• The Lorenz Curve graphically shows income or wealth inequality.

• It maps the cumulative percentage of income on the vertical axis and the cumulative proportion of the population on the horizontal axis.

• Cumulative means something that builds up or increases over time by adding it together.

• The Lorenz curve shows the cumulative percentage of total income earned as you move from the poorest to the richest groups in society.

• A line of perfect equality represents perfect income equality, where everyone earns the same income.

• The Lorenz curve for wealth is generally more unequal than for income.

Definitions

• Income Inequality: Income inequality means that income is not shared evenly across the population. Some people or groups earn a lot more money than others.

• Wealth Inequality: Wealth inequality refers to the unequal distribution of assets and wealth among individuals or groups in a society. This uneven distribution of wealth can lead to big gaps in living standards and opportunities between the richest and the poorest groups in society.

Circular Flow Model

• The five sectors that make up our economy are:

  • Household sector

  • Firm sector

  • Financial sector

  • Government sector

  • Overseas sector

• The left-hand side represents money going out of the economy – LEAKAGES. These are savings, taxation and imports.

• On the right-hand side represents the money coming into the economy – INJECTIONS. These are investment, government spending and exports.