Economic Unit 1 Exam

Question 1

What are non-

living standards?

Answer 1

Non-material living standards involve the quality of life factors, such as health, education, and environmental quality.

Question 1

What are material living standards?

Answer 1

Material living standards refer to the physical goods and services available to people, like housing, food, and clothing.

Question 2

How could floods influence material living standards

Answer 2

Floods can destroy homes and businesses, reducing the availability of goods and services, and lowering material living standards.

Question 3

How could floods influence non-material living standards

Answer 3

Floods can cause stress, disrupt communities, and degrade the environment, negatively impacting non-material living standards.

Q1b1:

Question 4

How do floods negatively impact economic activity?

Answer 4

Floods can halt production, damage infrastructure, and reduce consumer spending.

Question 5

What is the traditional viewpoint of a business in the economy?

Answer 5

The traditional viewpoint is that businesses aim to maximize profit.

Question 6

What is a movement along a demand or supply curve?

Answer 6

Movement along a curve occurs due to a change in price.

Question 7

What is a shift of a demand or supply curve?

Answer 7

A shift occurs due to factors other than price, such as changes in production costs or consumer preferences.

Question 8

What is an oligopoly?

Answer 8

An oligopoly is a market structure with few large firms dominating the market.

Question 9

How might moving from an oligopoly to monopolistic competition influence for example milk production?

Answer 9

It could increase production as more firms enter the market, leading to more competition and variety.

Question 10

How do changes in relative prices reallocate resources?

Answer 10

Higher prices in one market attract resources from other markets, increasing supply in the high-price market.

Question 11

How does this reallocation improve efficiency?

Answer 11

Resources are used where they are most valued, optimizing overall production and efficiency.

Question 12

How might farmers respond to government incentives like the flood relief program

Answer 12

: Farmers may use grants to cover immediate costs and invest in resilient farming practices, improving long-term productivity.

Question 13

What is traditional economics?

Answer 13

Traditional economics assumes rational behavior and maximization of utility or profit.

Question 14

What is a key insight of behavioral economics?

Answer 14

People often make irrational decisions, influenced by biases etc. Behavioural economics argues that, in the real-world, consumers behave differently, only having bounded (limited) rationality and bounded (limited) self-interest

Question 14

Q: What is behavioral economics?

Answer 14

Behavioral economics studies how psychological factors affect economic decisions.

Question 15

Give an example between behavioural economics and traditional economics.

Answer 15

For example, consumers may be rational some of the time, but due to the busy nature of everyday life, they often have to make snap decisions using biases rather than weighing the costs and benefits of every decision.

Question 16

What is the traditional economics viewpoint of self-interest?

Answer 16

People will only do things that benefit them individually.

Question 17

What is the key behavioural insight of bounded self-interest?

Answer 17

Consumers exhibit self-interest only in certain circumstances and sometimes act against their self-interest.

Question 18

Give an example of bounded self-interest in emergency situations.

Answer 18

People often help others in disasters like fires or building collapses, even at the risk of injury or death.

Question 19

What is ‘status quo’ or ‘default option’ bias?

Answer 19

It’s the tendency of consumers to stick with their current providers even if better options are available.

Question 20

Give examples of services where ‘status quo’ bias is commonly observed.

Answer 20

Mobile phone plans, internet providers, mortgage lenders, insurance providers, and energy providers.

Question 21

How can governments use ‘nudges’ to overcome ‘status quo’ bias?

Answer 21

By offering incentives, such as the Victorian government’s $250 incentive for comparing energy bills. Which it t encourages them to switch to more affordable or better-quality energy providers.

Question 22

Q: How does this ‘nudge’ affect businesses?

Answer 22

It forces businesses to offer better products at lower prices, knowing consumers are looking to change providers.

Question 23

Why do businesses exploit ‘status quo’ bias?

Answer 23

A: They often charge existing customers more than new customers due to the familiarity bias.

Question 24

What is the overall benefit of the ‘nudge’ in the energy market?

Answer 24

It improves resource allocation and market competition, leading to better prices or quality products.

Question 25

What is the primary goal of the private sector?

Answer 25

To maximize profit.

Question 26

Q: What is the primary goal of the public sector?

Answer 26

To provide public goods and services and improve societal welfare.

Question 27

Q: How can businesses engage in anti-competitive behavior?

Answer 27

By forming cartels, price-fixing, or creating barriers to entry.

Question 28

How does the government redistribute income to improve living standards?

Answer 28

A: Through taxation and welfare programs, such as unemployment benefits.

Question 29

How is how are goods and services produced in Australia answered?

Answer 29

Australia produces goods and services using a combination of advanced technology, skilled labor, and natural resources, with an emphasis on efficiency and sustainability. Both private enterprises and government regulations shape production methods.

Question 30

How is What does Australia produce answered?

Answer 30

Australia decides what to produce based on market demand and government policies. Key industries include mining, agriculture, and services, driven by both domestic needs and export opportunities.

Question 31

How is for whom are goods and services produced in Australia answered?

Answer 31

Australia distributes goods and services based on market mechanisms (who can afford to pay) and government interventions (welfare programs, public services) to ensure a more equitable distribution of resources.

Question 32

What type of economic system does Australia have?

Answer 32

Australia operates a mixed economy, incorporating elements of both market and command economies.
The private sector drives most economic activities, but the government plays a significant role in regulation, welfare, and providing public goods and services.

Question 33

What role does the government play in Australia’s economy?

Answer 33

The Australian government regulates markets to ensure competition, protect consumers, and maintain fair labor practices.
It provides public goods (infrastructure, education, healthcare) and welfare programs to support citizens.

Question 34

What is relative scarcity and how does it relate to government spending on infrastructure?

Answer 34

Relative scarcity refers to the imbalance between society’s finite resources and unlimited wants and needs. Economic decisions must be made about resource allocation,
Example: Government faces labor shortages in construction, impacting projects like affordable housing and public infrastructure.

Question 35

What is opportunity cost and how does it apply to government spending decisions?

Answer 35

Opportunity cost is the value of the next best alternative not taken.

Example: If the government build a new road, then that money can’t be used for alternative spending plans, such as education and healthcare. q

Question 36

How do relative scarcity and opportunity cost relate in the context of government spending?

Answer 36

Relative scarcity forces the government to make choices due to limited resources.
These choices result in opportunity costs, as selecting one project means foregoing the benefits of another.

Question 37

What is technical efficiency?

Answer 37

Technical efficiency is when firms produce goods and services using the least-cost method and minimizing resources used.

Question 38

What is allocative efficiency?

Answer 38

Allocative efficiency is when resources are used to produce goods and services that best satisfy society’s needs and wants.

Question 39

How do technical efficiency and allocative efficiency differ?

Answer 39

Technical efficiency focuses on output using a low amount of materials whilst allocative efficiency is about producing outputs that maximize society’s wellbeing.

Question 40

Bounded Willpower - Definition

Answer 40

Bounded willpower is the tendency to favor immediate gratification over long-term benefits due to limited self-control.

Question 41

Bounded Willpower - Example

Answer 41

Procrastination on studying for an exam, opting for immediate entertainment over long-term academic success.

Question 42

Bounded Self-Interest - Definition

Answer 42

the idea that people are often willing to choose a less-optimal outcome for themselves if it means they can support others.

Question 43

Bounded Self-Interest - Example

Answer 43

Donating to charity, such as during a disaster relief campaign, even though it reduces personal financial resources.

Question 44

Government Action - Example, and the impact it has on consumer and business behaviour

Answer 44

A government introduces a tax on sugary drinks to reduce sugar consumption and improve public health. Consumers are likely to buy fewer sugary drinks due to the higher prices, shifting towards healthier alternatives. Businesses may reformulate products to reduce sugar content or market healthier beverages to maintain sales.

Question 45

Marginal Benefits - Definition

Answer 45

Marginal benefits refer to the additional satisfaction or utility gained from consuming one more unit of a good or service.

Question 46

Marginal Benefits - Example

Answer 46

If you enjoy eating pizza, the marginal benefit is the extra pleasure you get from eating an additional slice. As you eat more slices, the additional satisfaction from each extra slice typically decreases.