Economics & Business
Key Concepts
Scarcity: Refers to the basic economic problem that arises because resources are limited while human wants are unlimited. It leads to the need for making choices on how to allocate resources effectively.
Interdependence: Describes the mutual reliance between individuals, businesses, and countries. In an interconnected global economy, the actions of one entity impact others, emphasising the importance of cooperation and collaboration in trade and resource management.
Allocation: The process of distributing available resources among various uses. Efficient allocation ensures that resources are utilised in a way that maximises benefits, whether for individuals, firms, or economies as a whole.
Markets: Platforms or systems through which buyers and sellers interact to exchange goods and services. Markets facilitate trade and help establish prices based on supply and demand dynamics.
Economic Performance & Living Standards: Economic performance is measured by various indicators such as GDP growth, employment rates, and inflation. Living standards refer to the quality of life and wealth of individuals in a society, often influenced by economic performance.
Specialisation & Trade: Specialisation occurs when individuals or nations focus on the production of specific goods or services, leading to increased efficiency and productivity. Trade allows these specialised products to be exchanged, benefiting all parties involved.
Making Choices (Opportunity Cost): Opportunity cost is the value of the next best alternative that is forgone when making a decision. It highlights the concept of trade-offs in resource allocation and underscores the significance of weighing benefits when making choices in economics.
Circular Flow Model
Households and Firms Sectors
Households own the resources and are the buyers (consumers) who demand the goods & services (g&s)
Firms are the users of the resources and produce all the goods and services
Income and resources are parts of the factors of production
g&s and consumer spending are part of the product market
Government Sector
The govt. needs to purchase goods and services from the firms
This is called government spending and helps fulfil collective wants for society.
To pay for the g&s, households have to pay the govt. taxes from their income
Taxation is a leakage, as it reduces the flow of money between households and firms.
Govt. spending is an injection as it increases the flow of money between firms and house holds.
Tax can be GST or income tax.
Financial Sector
Savings is the portion of household’s income not spent G&S
These savings are deposited into the financial sector
Investment loans provide money to firms to buy the equipment used in production and to expand business
Savings is a leakage as it reduces the flow of money
Investment Loans are injections
Households buy imports, (g&s from overseas) making a leakage from the economy of a country.
Exports are g&s other countries purchase from your. country’s firms, injecting another country’s income into our economy
This sector is controlled by the Dept. of Foreign Affairs and Trends (DeFAT)
Types of Markets
In economics, a market is where buyers and sellers interact with one another to exchange things of value (exchange g&s). An economic market exists for anything that can be bought and sold.
Types
Retail Market–Goods are sold to consumers in shops, in special markets online
Labour Market–Where workers sell their labour to employers.
Stock Market–where shares in companies are bought and sold
Housing Market–where houses are bought and sold. Houses can also be leased to a tenant in exchange for rent.
Foreign Exchange–Largest market, where different currencies
The Stock Market
aka. ‘Share Market’
The shares in companies that are bought and sold; each share is a unit of ownership' in a company.
Large companies will divide their ownership into millions of shares which are bought and sold on the stock market
The Australian Housing Market
Free Market–a market with few govt. restrictions on how g&s can be produced/sold
Market Regulation–In a mixed economy such as the Aus. govt. takes steps to ensure markets operate as fairly and competitively as possible
Three ways:
Regulate behaviour of buyers and sellers
Provide g&s that aren’t adequately provided by sellers
By operating their own businesses, known as govt. business enterprise
Supply and Demand
The Importance of Supply and Demand
Resource Allocation: Supply and Demand allows us to understand how resources are allocated within an economy.
Price Determination: Supply and Demand explains how prices are determined by the market.
Daily Impact: These economic factors impact daily decisions for individuals, businesses, and the government.
Everyday Life Examples:
Fruit and Vegetables: Prices fluctuate based on seasonal or situational availability.
Fuel: Prices change due to demand or supply constraints.
Entertainment: Ticket prices at concerts or sporting events vary based on popularity.
Travel: Airline flight prices often increase during school holidays due to higher demand.
Concept Development: Demand
Definition: Demand is the quantity of a good or service that consumers are willing and able to purchase at various price points.
Key Points:
Reflects the willingness and ability of consumers to buy.
Influenced by factors such as income, preferences, and the prices of related goods.
The Law of Demand:
As the price of a good or service decreases, the quantity demanded increases.
As the price increases, the quantity demanded decreases.
Lower prices attract more buyers.
Market Equilibrium and Ceteris Paribus
Equilibrium: The point at which the supply and demand curves intersect.
Equilibrium Price ($ $P_1 $ $): The specific price at which demand and supply intersect.
Equilibrium Quantity ($ $Q_1 $ $): The specific quantity at which demand and supply intersect.
Clearing Price: The equilibrium price is often referred to as the "clearing price" because at this point, the market is cleared of all goods with no surplus or shortage.
Ceteris Paribus:
A Latin term meaning "all other things being equal."
In economics, this concept is used to find the effect of a change in one variable by holding all other variables constant.
Market Imbalances: Surplus and Shortage
Surplus (Supply > Demand):
Occurs when the market price is too high, and there is too much supply compared to demand, making extra of the product.
The surplus amount is calculated as Total Revenues minus Total Expenses over a specific period
To clear a surplus, the market will reduce prices. This price reduction will increase demand and decrease supply until equilibrium is reached.
Shortage (Demand > Supply):
Opposite of Surplus, more common
Occurs when the market price is below the equilibrium price .
The quantity demanded is and the quantity supplied is.
The shortage amount is calculated as Total Supply-Total demand.
To clear a shortage, the market will increase prices. This price increase will decrease demand and increase supply until equilibrium is reached.
Movements versus Shifts
Movement Along the Curve:
Cause: Occurs only when there is a change in the price of the specific good or service.
Expansion: An increase in demand or supply resulting from a price change.
Contraction: A decrease in demand or supply resulting from a price change.
Shift of the Curve:
Cause: Occurs when there is a change in demand or supply due to factors other than the price of the good or service.
Direction of Shift:
Rightward Shift: Represents an increase in demand or supply.
Leftward Shift: Represents a decrease in demand or supply.
Factors Causing Shifts (Non-Price Factors)
Causes of Shifts in Demand:
Changes in consumer income.
Preferences and tastes of consumers.
Prices of related goods (substitutes and complementary goods).
Future expectations of buyers.
Causes of Shifts in Supply:
Changes in production costs (e.g., wages, raw materials).
Technological advancements.
Future expectations of sellers.
Natural events (e.g., weather conditions, natural disasters).
Demand | Supply | |
Movements | Occurs when there is a change in the price of the particular good or service. Referred to as contractions and expansions | Occurs when there is a change in the price of the particular good or service. Referred to as contractions and expansions |
Shifts | Occurs when there is a change in demand due to factors other than the price of the good or service. | Occurs when there is a change in supply due to factors other than the price of the good or service. |
Causes |
|
|
Direction | Contraction/Expansion Increase/Decrease | Contraction/Expansion Increase/Decrease |
Trade Partnerships
Trade–Buying, selling or exchanging g/s between people, countries, etc.
GDP–The market value of all the FINAL g/s produced in our economy per year (GDP per capita is GDP divided per person)
What is Free Trade
Free Trade Agreements (FTAs) are treaties between 2 or more countries designed to reduce or eliminate certain barriers to trade and investment, and to aid stronger trade and commercial ties between participating countries
Countries can attempt to protect the local market from imports. They may have protectionist policies to ensure that local (domestic) businesses never suffer due to cheaper imports from overseas.
Taxation and Govt. Spending
The Australian Tax Office (ATO) is responsible for the administration of the tax system in Australia
Tax is the money that the govt. collects and then uses for services such as:
Education
Healthcare
Parks
Roads
Police
Income Tax
Everyone who earns a certain in Australia has to pay tax.
Includes individuals and companies. Employees have income tax taken from their pay automatically in every pay cycle.
Companies and businesses owners are responsible for making income tax payments regularly/annually
Income tax is Australia’s main source of tax
The more money you earn in Aus, the more tax you contribute to society.
Subsidies, paid from taxes, are provided for the production and consumption of goods with social benefits.
Company Tax
A fee that businesses pay to the federal govt., based on the profit they make each year.
Companies pay a percentage of their earnings to the govt. after business expenses
Small businesses pay a lower tax rate of 25%, while large corporations pay a higher rate of 30%
GST
Goods and Service Tax
10% tax added to most g/s and other items sold/consumed in Australia. Introduced on July 1, 2000 in Australia, the final consumer pays the tax as part of the retail price.
e.g. If a product cost $100 before GST, then it would be advertised and sold as $110.
In Aus, all GST revenue is collated by the federal govt. and fully distributed to the states and territories depending on their relative need and ability to raise revenue
They are not even to ensure fair, complete ability to fund essential services like schools and hospitals, regardless of its local revenue or geographic size.
Influences on the Way People Work
Fulfil needs and wants
If the work is meaningful to you, it can make you happy
Social engagement
Humans have a hunger to contribute to society, to work in any way for not themselves but the community, even if its small.
Technological Change
Technology has consistently changed the way workers across every industry do their jobs.
Technology has changed work practices to:
Make products at a faster rate.
Reduce the amount of labour to produce goods.
Make quality, reliable products.
Reduce costs of labour.
Produce cheaper goods and services for customers.
Share knowledge and skills more widely.
Outsourcing Labour
Outsourcing labour is when businesses use outside suppliers to provide goods and services.
Countries that have cheaper labour (where workers are paid less than Australian workers for the same jobs), provide goods and services at a cheaper price, to make it affordable for Australian customers.
Advances in education, technology and communication has made it easier to have high quality goods and services from a global workforce.
Outsourcing also occurs locally. For example, an Australian business may not have a cleaning department. Therefore, they request a local business to perform the cleaning services for their premises.
Work Communication
In recent years, there have been extreme changes in the way people communicate using technology at work, this will continue to develop.
Email and instant are faster than traditional post
Social is used by producers and service providers to communicate with consumers
Systems such as an online ‘cloud’ allow to save documents that can be accessed anywhere