ECO Unit 3 - Outcome 2 - The Purpose of Economic Activity

Question 1

Define Living Standards

Answer 1

Refer to how well off a nation is overall. Living standards are affected by both material and non-material factors.

Question 2

Define Material Living Standards

Answer 2

Material living standards refer to the level of economic well-being of individuals or households, typically measured by their access to and consumption of goods and services. It focuses on tangible aspects of living standards, such as income, housing, food, healthcare, education, and other material possessions that contribute to a person’s quality of life.

Question 3

How do we measure material living standards over time?

Answer 3

Average material living standards are commonly measured by the annual real value of GDP per capita.

Question 4

How is GDP a measure of access to goods and services?

Answer 4

Average material living standards is commonly measured by the annual real value of GDP per person. Real GDP per capita measures the total market value of all goods and services produced in Australia over the year, after making statistical adjustments that removes the effects of changes in the prices between one year and the next.

Question 5

In what way is “Real GDP per capita” a better measure than just an increase in GDP as a measure of access to goods and services?

Answer 5

Growth of per capita real GDP is a better measure of economic growth than the growth of real GDP because the former gives more reliable data as it considers the population size of the economy, and the latter shows only the change and not the growth.

Question 6

In what ways is using GDP as a measure of access to resources an inadequate measure of living standards (both material and non-material)?

Answer 6

GDP measures production capacity and economic growth (indicator of material living standards), but does not take into account non-material living standards such as access to welfare or the wellbeing of citizens.

Question 7

Define non-material living standards

Answer 7

Non-material living standards are qualitative factors that impacts an individual’s daily life. For example, happiness, physical and mental health, positive social relationships, absence of crime, war and violence, fair and just society, social, economic and political freedom, life expectancy, etc..

Question 8

Distinguish between material and non-material living standards

Answer 8

Material living standards involve the level of economic wellbeing of individuals, real per capita incomes and the “quantity” of physical goods and services available for each person to consume. In contrast, non-material living standards refer to “quality” aspects of a person’s daily life. Non-material living standards are hard to define because they are subjective or depend partly on personal values.