ECOnomics

• Economic problem


  Wants, resources, scarcity
• Need for choice


  By individuals and society
• Opportunity cost


  Application through production possibility frontiers
• Future implications of current choices


  By individuals, businesses and governments
• Economic factors underlying decision-making

  • Individuals - spending, saving, work, education, retirement, voting and participation in the political process
  • Business - pricing, production, resource use, industrial relations
  • Governments - influencing the decisions of individuals and business
• Economic problem is limited wants and scarce resources
• We need choice because we have limited resources so we have to choose what to consume
• Choices can result in

  Shorter term growth and high standard of living or longer term growth and high standard of living
• Individuals consider


  What they can do with income when making decisions
• Governments are influenced by

  Consumer and employee protection, also influence business and individuals by changing things like resource distribution, environmental laws and laws around competition, also raising tax
• The operation of an economy

  • Production of goods and services from resources - natural, labour, capital and entrepreneurial resources
  • Distribution of goods and services
  • Exchange of goods and services
  • Provision of income
  • Provision of employment and quality of life through the business cycle
  • The circular flow of income - individuals, businesses, financial institutions, governments, international trade and financial flows
• Considerations in economic decisions

  • What to produce - What is popular, Current demand, Availability of resources
  • How much to produce - Current demand, What resources are available
  • How to produce - Ethical concerns, What is cheap, What maximises production to maximise profits, Technological advancements
  • To whom to distribute - Who can buy this product, Who has money to buy and contribute to the production process
• Different economies


  • Planned economy - All controlled by government, Ideally make everything equal
  • Market based economy - Based on supply and money, Markets and competition fluctuate economy
  • No economy is fully one, Australia is more market based but we have government intervention so it isn't fully market based
• Sectors of businesses


  • Tertiary - Goods and services, Most employment
  • Secondary - Turning natural goods into goods that can be sold such as steel to steel pipes, Manufacturing, Most done overseas now
  • Primary - Extracting natural resources, Farmers, Mining
• Business cycle


  • Upswing - Economic activity increasing, Production increasing, Income increasing, Unemployment decreasing, Inflation increasing
  • Downswing - Economic activity decreasing, Production decreasing, Income decreasing, Unemployment increasing, Inflation decreasing
  • Boom - High economic activity, High production, High income, Low unemployment, High inflation
  • Recession - Low economic activity, Low production, Low income, High unemployment, Low inflation
• Circular flow of income

  • Leakages: Imports, Taxation, Savings
  • Injections: Investment, Government expenditure, Exports
• Economic growth - people will save more, more taxed and more imports (more leakages) leads to regain of equilibrium
• Economic decline - less savings, less tax and less imports (less injections) leads to regain of equilibrium
• Acronyms


  • Y = Income
  • C = Consumption
  • S = Savings
  • I = Investment
  • T = Taxation
  • G = Government expenditure
  • X = Export
  • M = Import
• Economies: their similarities and differences - examine similarities and differences between Australia and at least one economy in Asia in relation to: economic growth and the quality of life, employment and unemployment, distribution of income, environmental sustainability, the role of government in health care, education and social welfare
• Consumer sovereignty


  Patterns of consumer spending and saving/dissaving: variations with income and age - individual consumers either spend or save their income - in the economy as a whole, as income rises the level of saving increases
• Factors influencing individual consumer choice

  • Income
  • Price
  • Price of substitutes
  • Price of complements
  • Preferences/tastes
  • Advertising
• Sources of income


  • The return for resources: wages, rent, interest and profits
  • Social welfare
• APC


  Consumption over income
• APS


  Savings on income
• APS + APC = 1
• MPC


  Change in consumption over change in income
• MPS


  Change in savings over change in income
• MPC+MPS = 1
• Things determining spending preferences

  • Education
  • Income
  • Life cycle
  • Advertising
  • Weather
• Complementary good


  They can be used together, e.g. petrol and car
• Supplementary goods


  They can be swapped, e.g. butter and margarine
• Informative advertising


  Communicates info about price features and function
• Persuasive advertising


  Builds brands loyalty by linking the goods to a certain social image
• Types of income


  • Earned income - wages and salaries
  • Unearned income - dividends, profit, commissions
• Personal wealth


  The net value of real and financial assets owned by an individual at a certain point in time
• Social welfare


  Government money given to disadvantaged groups - rates derived from taxation revenues, government also implements things such as progressive tax system to promote income equality
• Firm


  Any business organisation which combines and uses resources (the factors of production) to produce goods and services in return for a profit
• Industry


  A group of firms producing a similar range of goods and services
• Types of industry


  • Primary industry (natural resources)
  • Secondary industry (manufacturing)
  • Tertiary industry (services)
  • Quaternary industry - services that transfer and process information and knowledge, e.g. medicine, law, education, IT, finance
  • Quinary industry - personal services that have traditionally been performed at home, e.g. hospitality, tourism, childcare, cleaning