Chapter 8.2

Question 1

What is the household sector?

Answer 1

The household sector is a term used by economists to refer to the total of all consumers in the economy. Every person in the economy is a consumer.

Question 2

What does the household sector do for the business sector?

Answer 2

The household sector provides the labour required by the business sector to produce those goods and services.

Question 3

What does the household sector receive, and what do they do with what they receive?

Answer 3

Members of the household sector receive wages for their labour, and use the money they receive to buy goods and services to satisfy their needs and wants.

Question 4

What is demand?

Answer 4

The amount of goods or services that consumers are willing and able to purchase at a particular point in time is known as consumer or household demand. If businesses wishes to be successful, they need to respond to this demand.

Question 5

What is the business sector?

Answer 5

The business sector is made up of a large number of producers, all seeking to provide goods and services to satisfy the needs and wants of households.

Question 6

What is land in the business sector?

Answer 6

All the raw materials and other natural resources that go into production

Question 7

What is labour in the business sector?

Answer 7

The human skills and effort required to produce goods and services

Question 8

What is capital in the business sector?

Answer 8

All the equipment (machinery, buildings, tools) used by human labour in the process of production

Question 9

What is enterprise in the business sector?

Answer 9

The ability to recognise the demand for new goods or services, and to start up a new business or expand an existing business to attempt to satisfy that demand.

Question 10

What are the four factors of production?

Answer 10

Land, labour, capital, enterprise

Question 11

What is the financial sector?

Answer 11

The financial sector is the area of the economy concerned with the lending and borrowing of money.

Question 12

What are the four functions of money?

Answer 12

Medium of exchange, measure of value, store of value, standard of deferred payment

Question 13

What is medium of exchange?

Answer 13

Money allows us to pay for goods and services because it is accepted by everyone in our economy in exchange for goods and services. Hence employees exchange their labour for money, and businesses accept money in exchange for the goods and services they supply.

Question 14

What is measure of value?

Answer 14

Money allows us to put a price on the goods and services we exchange. The price is a measure of what we believe the goods or services to be worth when compared to other goods and services.

Question 15

What is store of value?

Answer 15

Money allows us to save our income or wealth for spending at a later date because it holds its value.

Question 16

What is standard of deferred payment?

Answer 16

Money allows us to purchase goods and services on credit, with both buyer and seller knowing exactly how much has to be paid at a later date.

Question 17

What are financial intermediaries?

Answer 17

Financial intermediaries are any organisation that takes deposits from those with surplus funds and makes those funds available to borrowers, e.g. Banks.

Question 18

What is capital investment?

Answer 18

Most businesses will borrow money, particularly when they need to expand the business. This may involve buying new equipment or moving to larger premises. Money spent in this way is known as capital investment.

Question 19

What is investment?

Answer 19

Investment is the use of money to purchase equipment or premises for the establishment of a new business or the expansion of an existing business.

Question 20

What is the government sector?

Answer 20

The government sector is the area of the economy concerned with regulation, taxation and redistribution of wealth.

Question 21

What is the first reason why the government plays an important role in the economy?

Answer 21

The first reason is that money taken by the government in taxes is able to regulate how much consumers are able to spend on goods and services. For instance, if the government taxes the population at a high rate, then the population has a little amount to spend on goods and services, thus making it harder for businesses to grow.

Question 22

What is the second reason why the government plays an important role in the economy?

Answer 22

Money collected in taxes can be used to supply pensioners and people who are unemployed with the sufficient funds to purchase goods and services. This increases the amount of money to be spent on goods and services, meaning businesses are more easily able to flourish.

Question 23

What is the third reason why the government plays an important role in the economy?

Answer 23

Money collected in taxes can be used by the government to provide the population with essential services, such as roads, train stations, schools, and hospitals. The money for the businesses that do the actual building also grow and employ more people.

Question 24

What is the overseas sector?

Answer 24

Australia is an open economy, meaning that we trade goods and services with other countries.

Question 25

What are exports?

Answer 25

Exports are goods and services sold by local businesses to overseas consumers.

Question 26

What are imports?

Answer 26

Imports are goods and services bought by local businesses and consumers from overseas producers and businesses.

Question 27

What is the first reason why we import and export goods?

Answer 27

• Australia has a relatively small population, so if overseas consumers are willing to buy the goods and services we produce, it helps our local businesses grow.

Question 28

What is the second reason why we import and export goods?

Answer 28

• There are some products that we are unable to produce with the same efficiency as can be achieved in other countries.

Question 29

What is the third reason why we import and export goods?

Answer 29

• Imported goods are sometimes cheaper to produce than locally produced goods.