Economic Performance, Term 1. Flashcards
What is economics?
It is a social science directed at the satisfaction of needs and wants through the allocation of scarce resources which have alternative uses.
It is the study of scarcity and choice.
What are needs?
They are basic and necessary for our survival. E.g. food, clothing, shelter.
What are wants?
They are desires for something that is NOT essential for survival. They help us survive in a better way. E.g. mobile phone, jewellery.
What is scarcity?
It is the state of being in short supply of something.
What are the types of economy systems?
- subsistence economy
- market economy
- command economy
- mixed economy
What is a subsistence economy?
An economy which is not based on money, though barter may occur, and which commonly provides a minimal standard of living. Where traditions determine economic decision making however these no longer exist.
Characteristics of a subsistence economy.
Moneyless and relies on natural resources to provide for basic needs through hunting, gathering, and agriculture.
Example of a subsistence economy.
North Sentinel Island in the Andamans, home to the Sentinelese tribe.
What is a market economy?
It is a free will economy, where production and prices are determined by unrestricted competition between privately owned businesses.
Characteristics of a market economy
Private ownership, freedom of choice, self-interest, buying and selling platforms, competition and limited government intervention.
Example of a market economy.
Hong Kong in China.
What is a command economy?
An economic system is where a central government makes all economic decisions.
Characteristics of a command economy.
Government creates a central economic plan which sets the priorities for the production of all goods and services, owns monopoly businesses, creates laws, regulations and directives to enforce the central plan.
Example of a command economy.
North Korea.
What is a mixed economy?
Combination of market, command, and subsistence economies and has both the advantages and disadvantages of the three.
Characteristics of a mixed economy.
Allows the free market and laws of supply and demand to determine prices and driven by motivation of the self-interest of individuals.
What is the business cycle?
It depicts the rise and fall in output (production of goods and services) over time.
The Australian Economy is…
market-based. Most decisions to produce or consume goods and services reflect demand and supply in the market.
Why is the economy so important?
It can influence the decisions we make, which influences how the economy is performing. It is important to us all and can equally affect our lives.
How do we know if our economy is doing well?
When economists are constantly monitoring economic activity.
What are the key economic indicators?
Economists investigate many different indictors to build up a picture of how the Australian economy is performing. Key indictors are inflation rates, GDP and unemployment rates.
What is inflation?
Inflation is the rate of increase in prices over a given period of time.
What is Australia’s inflation target?
Australia’s inflation target is to keep consumer price inflation between 2-3% on average over time.
What causes high inflation?
Some reasons high inflation could occur is if:
- the economy grows faster than its speed limit, this leads to demand for goods and services may exceed what businesses can supply, increase wages if difficult to find workers
- the supply of some goods and services is disrupted then their prices may increase, this effects other prices if that good or service is an input into making them other goods or services.