Basic Terms

Question 1

What are Factors of Demand?

Answer 1

Factors which influence what we purchase

Question 2

What are the four factors of demand?

Answer 2

1. The price of the product itself
2. The price of complementary products
3. The price of substitute products
4. Our personal tastes and preferences

Question 3

What are complementary products?

Answer 3

A pair of products that are connected to each other- an increase in sales for the first product would increase the demand for the second product.

Example; cars and petrol, seeds and fertiliser

Question 4

What are substitute products?

Answer 4

Products that are very similar - if the price of one changes it will impact the demand for the other product.

Example: If Coke were to become expensive, the demand for Pepsi would increase

Question 5

What factors can influence our personal tastes and preferences?

Answer 5

Our peers, marketing, celebrities, the media etc.

Question 6

What does the price of the product itself determine?

Answer 6

It determines whether we can justify the purchase.

Question 7

What is economics?

Answer 7

Economics is the study of how resources are used to best satisfy society’s needs and wants.

Question 8

What are the four types of resources?

Answer 8

Land, Labour, Capital and Enterprise.

Question 9

What is a land resource?

Answer 9

A land resource is a natural resource.

Example: farmland, trees, minerals, water etc.

Question 10

What is a labour resource?

Answer 10

All physical and mental effort by workers.

Example: builders, farmers, engineers etc.

Question 11

What is a capital resource?

Answer 11

A capital resource is any machinery or tool.

Example: hammer, robotics, drills etc.

Question 12

What is an enterprise resource?

Answer 12

An enterprise resource is the idea in the production process.

Question 13

What is a Need?

Answer 13

An item we need in order to survive.

Example: food, shelter and clothing

Question 14

What is a Want?

Answer 14

Items which improve our lifestyle, but are not essential- luxury items.

Question 15

What is Relative Scarcity?

Answer 15

Relative scarcity describes how our needs and wants are unlimited but the resources available to satisfy them are limited.

Question 16

What is opportunity cost?

Answer 16

Opportunity cost describes the idea that the choices in consumption are based not on “what I want the most” but rather “what will bother me the least if I miss out on it”.

Question 17

What are the three basic economic questions?

Answer 17

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

Question 18

What is consumer sovereignty?

Answer 18

When the needs and wants of the consumers control the output of producers (meaning businesses should produce goods & services that consumers actually want to purchase)

Question 19

What is a cost-efficient method that producers use?

Answer 19

Maximising outputs for a given amount of inputs.

Example: using off cuts of food in a restaurant for other purposes (recycling the waste)

Question 20

For whom should businesses produce?

Answer 20

The people who can pay the price will receive the products that are produced by businesses.

Question 21

What is the law of Demand?

Answer 21

As the price decreases the quantity demanded for any product must increase.

Question 22

What is the law of Supply?

Answer 22

As the price decreases the quantity supplied for any product must decrease.

Question 23

What is a Supply and Demand Curve?

Answer 23

A diagram (graph) that shows the concept of supply and demand. It describes the ‘market’ for any good or service.

Question 24

What is equilibrium?

Answer 24

A situation in which supply and demand are matched and prices are stable.

Question 25

If the price of a product is too high, causing excess supply (due to fewer purchases) it is known as?

Answer 25

Oversupply or Surplus

Question 26

If the price of a product is low and there is an excess in demand (leaving an insufficient amount of the product) it is known as?

Answer 26

Shortage

Question 27

What is the invisible hand?

Answer 27

A market force that helps the supply and demand of a product reach equilibrium automatically.

Question 28

What are the three main types of ownership structure?

Answer 28

Sole trader: if the business is owned by just one person eg. milk bars, hairdressers etc. Partnership: if you own a business with anywhere between 2 and 20 people eg. doctors, lawyers Private listed company: when the business has between 1 and 50 private shareholders eg. Aldi super markets, Tattersalls

Question 29

Define entrepreneur and enterprising

Answer 29

Entrepreneur- a person willing to take risks and start new business ventures to make money. Enterprising- having the ability and capacity to initiate ideas and do something about them.

Question 30

What is inflation?

Answer 30

Is an average rise in the general level of prices of goods and services over a period of time, leading to a reduction in the purchasing power of money. eg. $5 in old days bought more than what it can buy now days.

Question 31

What is a small business?

Answer 31

A small business is an independently owned and operated business with less than 50 employees.

Question 32

What businesses does the private sector consist of?

Answer 32

Sole trader businesses Partnership businesses Private companies Public companies Businesses owned by private individuals who exchange goods and services with consumers in order to make a profit.

Question 33

What is the public sector made up of?

Answer 33

The three levels of government- Local, State and Federal

Question 34

What's the difference between private and publicly listed companies?

Answer 34

Private listed companies are privately owned by the founders, management or a group of private investors. If the company offers all or a portion of itself to investors via an initial public offering, the company becomes a publicly listed company as any shareholder has claim to part of the companies assets and profits.

Question 35

What are the advantages and disadvantages of being a sole trader?

Answer 35

Advantages- all business decisions are made by you, you get to keep all the profit, it's cheaper to set up Disadvantages- can be difficult to obtain financing to start and maintain, if the business goes broke, your personal assets can be sold off to recoup any outstanding debts. (unlimited liability)

Question 36

What are the advantages and disadvantages of having a partnership?

Answer 36

Advantages- greater access to resources and money, broader range of expertise, shared workload. Disadvantages- unlimited liability (personal belongings used to settle debts), hard to leave agreement, cam lead to disagreements.

Question 37

What are the advantages and disadvantages of having a private listed company?

Answer 37

Advantages- the personal assets of the owners won't be affected if the company goes bankrupt (limited liability), easier to access finance, it is easier to leave the company Disadvantages- it's more expensive to register a company name, you have less input in the day to day running of the business.

Question 38

What is a gap in the market?

Answer 38

A gap in the market is an unmet consumer need or potential customers who are not yet purchasing a good or service. Gaps in the market represent opportunities for companies to expand their customers base by creating products to reach a new untapped market.

Question 39

What is a market economy?

Answer 39

A system where the prices of goods and services are determined by open market and its consumers/producers. Companies sell goods and services at the highest price consumers are willing to pay, while workers demand the highest wages that companies are willing to pay for their services.

Question 40

What is a command/planned economy?

Answer 40

A system where the government determines how and why things should be produced and for what price.

Question 41

What is a cost benefit analysis (CBA)?

Answer 41

A way business owners can estimate and analyse business decisions. (Like a pros/cons list) Cost: any negative effect on an organisation which occurs due to the execution of the project. Benefit: any positive effect on the organisation resulting from completing the project.

Question 42

What is corporate social responsibility?

Answer 42

Corporate social responsibility (CSR) is a corporation's initiatives to assess and take responsibility for the company's effects on environmental and social wellbeing.