economics (1) Flashcards
chapter 1-4
wants
material desires of individuals/community provide satsifaction when consumed
-derive UTILITY
individual wants
desires of each person depending on preferences/influenced by social trends
-satisfaction depends on ability to purchase (lvl income)
collective wants
howthe gvt does this
wants of whole community, depend on preferences of community as whole
-usually provided by government
LOCAL: local neighbourhoods eg parks, libraries
STATE: most for wider community eg. hospital school
FED: entire nationeg defence force
gvt provide collective wants by using taxation revenue collecting from community
recurrent
satisfy want over and over in future
complementary wants
naturally follows initial satisfaction of another want
what wants are there? 7
basic (needs), recurring (food). substitute (butter,margarine), luxury, complementary (cars + petrol), individual, collective (healthcare)
changes in want caused by 4 things
age, income, tech, social trends
PPF
production possibility frontier to demonstrate how opportunity costs arise deciding between competing alternatives
what are th 4 assumptions made by a PPF?
- only produce 2 goods
- land, labour, capital, enterprise fully utilised
- tech and resource level constant
- resources substitutable
opportunity cost coefficient/marginal rate of substitution (MRS) formula to measure opportunity cost
OP for each unit of X = change in production of Y + change in production of X (use division)
what are the 4 features of capital goods?
do NOT satisfy consumer wants NOW
satisfy in** FUTURE** by expanding ABILITY to produce
(economy produce more capital goods ^ productive capacity –> higher eco growth)
sacrifice high living standards in present
what 2 questions does the business trade off involve?
what’s best use of available resources (LLCE) + what to do with profit?
producing popular products now –> decline sales future / research & develop new ones sacrifice profit, may lead to greater success
higher restraint to keep profits INSTEAD of paying DIVIDENDS –> high potential profit in future
how are profits distributed to businesses?
to owners & shareholders satisfying present wants/retained by business to invest capital goods –> boost production & profit in future
government trade off
gvt prioritise spending present wants (higher welfare payments)
-expense of funding wants w/ longer payoffs (infrastructure, education, healthcare) –> lower eco growth (less skilled workforce, weak infras, less innovation)
-choose betw sacrifice politically popular short term < plan for future needs
one’s factors of decision making
- age, income level, expectations of future, family circumstances, leisure in retirement
- restraint on spending
- income rise + spend/save ?
- spending satisfies present wants while saving raises future living standards
eco decision making
business’ decision making
- how much to produce
- what resources to use
- how to manage staff
1. price
price
how much to produce
what resources to use
how to manage employees
-seek available resources will generate highest return to cost
PRICE **
-higherprice hoping maximising profits and small impact on lvl sales
-based on marketing strat: sell to mass market/niche (exclusive)**
-
PRODUCTION how much to produce (minimise costs and maximise quality, choose cheaper inputs but if supply not assured, pay slightly more for reliable supply, best combo of labour & capital)
-what RESOURCE USE (inputs environmentally sustainable or risk negative publicity)
-INDUSTRIAL RELATIONS issues
-how to manage employees
-employ ppl on wage lvls set by industrial awards/negotiate wage agreements with workforce/negotiate individual contracts with staff
Finite resources occur..
when we face OPPORTUNITY COSTS in productions
4 economic problemish process
- wants are unlimited
- resources to satisfy wants scarce
- cant satisfy wants with limited resources, choose between
- rank preferences, choose highest wanted and leave some unsatisfied
key economic issues (4)
- what to produce
since the eocnomy cannot satisfy all wants, it must decide which wants should be satisfied and others left unsatisifed to decie what g&s to produce. - how much?
economies need to allocate limited resources efficiently and maximise satisfaction. if produce too little = unsatisfied, too much = wasted - how to?
economies need ot decide the most effieicnt method ofp roduction USING LEAST AMOUNT OF RESOURCES SO GREATEST no wants can be satsified any time - how to distribute production?
for modern economies, everyones total share of total production depends on their level of income. higher income earners can afford to purchase more g&S, receiving a greater share of totalp roduction. the economy must decide if SHARE of total production should be more equitable/ inequitable. more efficient systems may produce less equitable outcomes.
opportunity cost
whenever we choose to produce/consumer 1 product, we miss out on the alternative products that could’ve been produced using those resouces
what can opportunity costs we applied to (business firm, individual, government)
BUS FIRM: make choice in allocating scarce resources
consumer: limited income choose between satisfying desire for something else (new car or holiday)
GVT: limited resources to satisfy community wants
production possibility frontier
demonstrate how opp costs arise
-shows various combinations of 2 alt products can be produced
-producemore of 1 goods requires producing less of other
what are the 4 assumptions of the PPF?+ what happens when the point is WITHIN curve?
- economy only produces 2 goods
- state of tech is constant, no tech advances
- quantity of resources unchanged
- all resources fully utilised (full productive capacity),
inside curve means producing less than max possible output and not all resources employed
OUTWARD SHIFT of PPF
due to NEW TECHNOLOGY.
-produce higher quantity of good with same amount resources
-1 pt stays
point inside PPF - what does this mean(2)
due to UNEMPLOYMENT
-any resources not fully employed,
-frontier doesnt change but position underneath line
- **insufficient allocation of resources,
- not achieving maximum satisfaction of wants with min opp cost**
shape of PPF
curve: some resources better suited to (oil) production and others (leather, cannot expect move resources from oil to leather w/o loss of productive capacity.
move more resources into prod leather, less productive, inc opp cost of leather, –> CONCAVE
capital goods
items not been produced for consumption but used for production of other goods(machinery)
although do not satsify wants now, satisfy in future by expanding ability to produce
long run, eco focuses more on prod capital goods ^ productive capactiy and exp higher lvl eco growth (higher pt on frontier 9 long term satsify wants better than country with lower pt)
economic decision making (capital goods vs consumer wants) implications on BUSINESS (BIG)
-must focue on one area of bus activity over another
-limited labour, cap, entrepreneurial skill & resources –> focus on products likely to max profit
eg. business likely to most effective if can identify next wave in bus growth come from (eg. IT) otherwise enter market too late and cant obtain competitive advantage
economic decision making implications for INDIVIDUALS
holiday instead of taking out mortgage & purchase house.
-saving for deposit sig sacrifice, years to pay off mortgage
-long term home ownership improves financial security (Dont have to pay rent, asset that can pass to children)
economic decisions implications on GVT
for gvt & entire eco
immediate needs: ^ welfare benefits, healthcare –> less funding for edu, infras, r&d –> long term less eco growth (lower skilsl in workforce, less innovation, weak infras (bad transport)
short term: politically popular to satisfy immediate wants than plan for future needs
factors that affect eco decision making process for BIG (individuals)
choose how much incoem to save & spend, influenced by income level, age, asset performance, expect of income rise/fall in future, family circumstances, future plans
plans in edu, work, family(cut personal expenditure, reduce working hrs & income to care for children), retirement
vote in elections (eco policies esp eax & infras, who is best at managing eco and budget & least likely to deliver lower unemployment, inflation & interest rates)
spending/saving
spending satisfies present wants
saving raises future living standards
factors that affect eco decision making for business
pricing decisions (max profits, market stat to sell product to mass market/target exclusive group of customers)
minimise costs & maximise quality (higher costs for quality equipment –> longer operating life, less maintenance)
-choose cheaper inputs/choose pay more for input reliable supply, ethical issues
manage industrial relation issues
-choose to employ ppl on wage lvls set by industrial awards
-negotiate wage agreements with workforce
-negotiate individual contracts with staff
-encourage union representation/involvement from employees in decisions
factors that affect eco decision making for GVTs
- sig influence over eco choices of ind & bus (price of choice)
may prohibit activities & impose heavy penalties
encourage activities & provide incentives for them (eg join private health insurance scheme)
gvt influence on eco from** inflencing decisions** of ind & bus and providing g&S directly
factors of production
any resources used in production of g&s
LAND (natural resources), CAPITAL
LABOUR
ENTERPRISE
-another name for resource/input
-quantity & quality of eco’s FOP/resources influence how welathy/poor country will be (lower standard of living/quality of life with fewer, poor quality resources)
Return/reward for FOP
land –> RENT
labour –> WAGES
capital –> INTEREST
enterprise –> PROFIT
LLCE –> RWIP
land (natural resources) in FOP
natural materials used in production process (soil, water)
owners of natural resources rewarded with rent (all income rewards derived from productive use of natural resources)
labour in FOP
human effort (physical & mental) to produce g&s
-supply of labour (can change over time) depends on country’s pop size (birth rate, life expectancy, immigration lvls), school leaving age, retirement age, social attitudes towards women in workforce
rewarded with wages
capital in FOC
produced means of production (not produced for immediate consumption, used in producing other g&s)
-machinery, factories
- owned privately by ind/firms
-infrastructure(social overhead capital) owned by community as whole eg. roads, schools
capital equipment increases productivity of other resources (how much output produced per factor of production per unit of time) satisfy more wants
entrepreneurs borrow money not spent by consumers (savings) to invest in capital goods (funds)
-consumers save money > spend, shift resources from consumer to capital goods
rewarded by earning INTEREST (etpnrs borrow excess savings in eco, pay interest(price of capital) on their loans
-alt, etpnrs invest own surplus funds in cap equip , int % could earn if put funds in bank represents opp cost of investing in capital.
capital in economics is NOT financial assets (money, shares, stocks, bonds)
enterprise in FOP
organising LLC to produce g&s, brings production process together
return to enterprise is PROFIT (not just revenue earned - expenses), entitled to receive rent for any land use owned in production process, wages for work & interest for capital invested in business.
-profit ECOMPASSES
limited supply for LLCE
land: limited natural resources for production (fossil fuels, clean air&water)
LABOUR
-population size
-labour market skills
-ind’s willingness to work
CAPITAL
-limited by extent to which GVTS & private sector willing to invest, and level of domestic/overseas savings available for investment
ENTERPRISE
-lim by population size & cultural and eco factors (ability and willingness of ind to innvoate and take risks)
in a MARKET ECO, decisions of how scarce resources are allocated in production are laregely determined by?
consumer spending patterns
-firms respond to demand by obtaining resources to produce items consumers want
-pay for resources & labour skilsl to produce g&s demanded
-bus decides which combo of resources to use in PP (prod proc), labour intensive/capital intensive
considerations accounted for when distributing what an economy produces
strike balance providing rewards for investment
-etpnrs & innovation
-ensure acceptable QOL
how do economic systems determine hwo to distribute and exchange g&s produced?
assign each individual certain lvl of income, commands them a certain proportion of output produced –> exchange income with others to obtain g&s
private sector
individuals, businesses and financial institutions
public sector
GVT
combines with private sector to make up DOMESTIC sector
how do market economies distribute output
-not equal within society
-provide ppl with income as reward for contribution to PP, value of input (labour)
-price paid for inputs determines ind’s share of total output, depend on how scarce/highly demanded resources are
benefits of a market economy inc distribution
-provides incentives for ppl to obtain better skills and work harder to improve their share of output/develop entrepreneurial skills and start business –> improve resource base, encourage innovation & technological adv
problems with market eco inc distribution
-unfair for those w/ illness, age, disability
-those w/ less bargaining power unable to secure fair return for labour input
how do GVTS redistribute income in market eco
-take money from higher income earners w/ taxation & redistributing to lower income earners through social security payments
how does money exchange allow individuals to contribute to production prcess?
allows ind to specialsie in how they contribute to production process (paid in money)
business cycle
recurring fluctuations in level of eco growth/activity due to domestic/international factors, affects income levels, employment opp and QOL of eco
generally towards increased output
economic activity
amount of g&s produced in given period of time
recession/eco slowdown
stage og bus cycle w/ decreasing eco activity for 2 consecutive quarters (6 months) of negative eco growth (fall in GDP)
how does the cyclical pattern of eco activity present problems for society?
-sig disruptions for ind & businesses
firms:
- postpone plans for new investment
-reduce production
-reduce demand for labour
hence, employment falls
how does increased unemployment negatively affect consumers?
-families forced to rely on savings & social security payments to meet expenses while normal sources of income ‘dried up’
-unemployed reduce consumption –> eco contract further –> more out of work –> poverty, living standards fall, health problems rise, edu opp disrupted, social problems (crime, suicide) ^ –> LOWER QOL
what happens during economic upturn?
-boom in eco growth = increased investment & production –> ^ demand for labour –> falling unemployment lvls –> ^ disposable income available –> further eco expansion as consumption lvls rise –> improve QOL
5 impacts of RECESSION PC&IIQU
FALLING prod g&s
FALLING lvls consumption & investment
FALLING income lvls
FALLING QOL
RISING unemployment
PC&IIQU
5 impacts of BOOM
INCREASING prod of g&s
RISING levels of C&I
RISING income levels
RISING QOL
FALLING unemployment
for prod of g&s, FALLING –> INCREASING, rest is falling to rising
aim for GVTS when intervene due to recession/slowdown
-to restore eco to growth
-improve employment opp
-ensure eco sustain eco grwoth for longer period of time to avoid major eco downturns
CFOI (circular flow of income) for INDIVIDUALS
-activities in earning income & spending on g&s
-owners of productive resource + consumers
-supply FOP (INPUTS) eg. labour & enterprise to BUS to produce g&s
-reward for supply resources to firms, ind receive incomes in RENT, WAGE, INTEREST, PROFIT (RWIP)
-spending goes to STI & consumption
BUSINESS in CFOI
-all business firms engaged in production & sale of g&s (apart from financial servies for financial sector)
-all activities involved with BUYING FOP and USING to produce & sell g&s
-businesses & individuals are INTERDEPENDENT (need each other)
!!! cfoi depicts flow of money between ind & bus, NOT flow of g&s/fop
FINANCIAL INST in cfoi
-all institutions engaged in BORROWING and LENDING money
-INTERMEDIARIES between SAVERS and BORROWERS of money
-banks, superfunds, life insurance comp…
why are financial institutions needed by individuals & firms?
undertake saving & investment
what is the financial institution sector and its function?
-financial ins (capital market)
-all financial intermediaries accepts savings (depositys) from ind & lend to bus for investment purposes
-mobilise savings so they can be used for investment
why do savings represent a LEAKAGE from cfoi?
savings involves money put aside & withdrawn from cfoi
-reduce size of cfoi –> reduce lvl eco activity –> upsets state of equilibrium in eco
injections (into cfoi)
flows of money that increase aggragate income & general level of eco activity (IGX)
investment, GVT spending, exports
leakage of savings chain EPDI
fall in expenditure on g&s
fall in prodction
fall in demand for resources
fall in income to owners of resources
What happens whtn cfoi reduces size (from leakage of savings) EPIU
falling expenditure
falling production
falling income
rising unemployment
what does injection of investment do?
stops reduction of cfoi by counteracting the leakage of savings
savings –> investment –> capital goods relationship
savings for investment which creates capital goods for eco’s growth
-forgoing current ocnsumption of g&s can invest capital and improve future productive capacity of eco to produce greater volume in future
investment and effects on cfoi
current expenditure made to obtain future benefits
-INJECTION into CFOI opposite effects of LEAKAGE (increases size –> eco activity)
effects of increasing investment (cycle)
- increased investment
- increased PRODUCTION of CAPITAL GOODS
- increased DEMAND for RESOURCES
- increased INCOME
- increased DEMAND for G&s –> increased demand…
gvt sector role
satisfy collective wants (roads, schools, hospitals) by imposing taxes on other sectors of eco
gvt 2 roles in CFOI
- imposes TAXES on ind&bus
- uses tax revenue for GVT EXPENDITURE
are taxes leakages/injections? why?
leakage - when inds pay income tax, reduces amt money to spend on g&s
when bus taxed, reduces funds available to pay for resources
reduce lvl eco activity: falling income, output, employment opp
gvt expenditure leakage/injection? why?
injection into CFOI
2. when gvt spends rev on collective g&s, provides income to employees
2. gvt uses rev to make transfer payments (pensions..) as income to recipients
increase eco activity: rising income, output, employment opp
international trade and financial flows in cfoi
all transactions AUS eco has with world
-exports (g&S produced in AUS sold overseas)
-imports
-INTERNATIONAL MONEY FLOWS (financial transactions eg. borrowing, lending)
imports leakage/injections
leakage - money withdrawn from aus eco and paid to bus overseas
-lending overseas
equlibrium in cfoi
leakages = injection
S + T + M = I + G + X
savings taxation imports = investment, gvt expenditure, exports
what happens to cfoi when total leakages > total injections
DOWNTURN in eco activity lvl
-falling incomes, production,
-rising unemployment
as eco activity falls –> leakages fall (consumers less income to SAVE, SPEND, collect as TAX) –> restore to equilibrium at LOWER INCOME level
happens to cfoi when injections > leakages
UPTURN in eco activity
-rising incomes, production, employment
-eco activity ^ –> leakages ^ (more income to save, spend, tax) –> restore to equilibrium at HIGHER INCOME level
how does gvt influence cfoi leakages & injections
change TAX levels and GVT REVenue –> manipulate size inj&leak and overall eco activity
-can offset undesirable outcomes from inequality of S&i or IT&MF (savings and investment, international trade and money flows)
-stimulate eco by ^injections relation to leakages, dampen vice versa
exports leakage/injection
injection - money paid to aus bus by consumers in other countries
-foreigners lending moeny also
pure market eco
all major eco decisiosns made by ind & private firms motivated by self interest
-most eco resources owned by private sector
-ppl seek wealth w/o gvt intervention
aka CAPITALIST, FREE ENTERPRISE, LAISSEZ-FAIRE
what contrasts a pure market eco?
centrally planned eco
-centrally planned system
-gvt makes eco decisions
-ind choices little role infleucning eco outcomes
-public ownership of FOP allows gvt allocate resources as desires
no longer pursued by any major eco but previously Russia, China
main weakness of pure market economy
those owned and controlled means of production become extremely wealthy while majority exploited and had few opp to get out of poverty
-vulnerable to volatile cycle of boom and bust
market
network of buyers and sellers seeking to exchange product at certain price
-in free market eco, markets for all g&s and for resources that produce them
product market
*sell finished g&s to HH & foreign sector
interaction of demand for and supply of g&s
-sellers are bus & their output decisions make up product supply
-price affects lvl consumer demand & supply by bus
why are prices so important for product markets
affects lvl consumer demand and supply by bus
-consumers want to buy lowest possible price to satisfy more wants
-firms want to sell at highest possible price to maximise profits
price mechanism
process where forces of supply and demand interact to determine market price g&s sold and quantity produced
factor market
market for FOP (input into PP)
-influenced by changes in demand & supply in product market
-eg. to increase supply, increase wages
what does Y = C + S mean
for specific level of income, increase in CONSUMPTION causes equal reduction in level of SAVING vice versa
change in disposable income –> change levels of consumption & savings
5 characteristics of a market eco
- market system (price mechanism, product & factor market)
- PRIVATE OWNERSHIP OF PROPERTY
- CONSUMER SOVEREIGNTY
- FREEDOM OF ENTERPRISE
- COMPETITION
PRIVATE ownership of property in market eco
ind have right to own resources and use to derive income and acquire wealth
-right to sell property/transfer ownership to apnother under personal conditions
consumer sovereignty in market eco
-free to choose how they’ll spend income to satisfy wants
-ultimately decide g&S produced by choosing which wants to satisfy
-bus produce g&s demanded –> SOVEREIGNTY
-consumers determine answer what to produce and how much produced
freedom of enterprise in market eco
individuals have right to use resources as choose
-entrepreneurs free to set profit-making activities and determine g&s they produce and how to produce
-workers free choose occupations/work/not
consumer sovereignty
manner which consumers though market demand collectively determine what produced and quantity of production
competition in market eco
competition is pressure on firms in market eco to lower prices/improve quality of output to ^sales of g&s to consumers
-allows price mechanism to work effectively
-large no. buyers & sellers, no single buyer/seller big enough on own to influence market price to have greater bargaining power over others
-less competitive market, few large bus can charge higher prices to make excessive profits at expense of consumer
-pure market eco large no. producers compete in every industry
APC average propensity to consume
proportion of total income spent on consumption
APS average propensity to save
prop of total income not spent, saved for future consumption
formulas for APC & APS
C/Y = APC
S/Y = APS
do ecos with higher per capita income save more/less proportion of income?
save greater proportion of their income
factors that influence levels of spending & saving in economy ICFLGA
INCOME LEVELS & future EXPECTATIONS
Cultural factors
Confidence & future expectations
Life stage & age distribution
GVT policies
Availability of credit
How does income levels and future expectations influence levels of spending & saving in a neconomy?
income across eco rise –> greater capacity to save
-saving may higher in ecos with greater INEQUALITY in income distribution (higher income = more capacity to save)
-uncertain of future income lvls, more likely to save
how do cultural factos influence lvls of spending and saving in an eco
influenced by individual personality factors (cautiouss vs easygoing)
wider cultural values (previous gens save more than today
how does confidence and future expecations influence levels of spending and saving in eco
consumers worried about eco outlook/job stability/future income –> cautious, save more
confident abt future & expect income rise –> increase consumption & save less
how does life stage & age distribution affect conumer spending & saving?
consump & saving behaviour changes over time, diff phases
-young adulthood
-start family, settle down
-late middle age incomes generally highest
-retirement
how do gvt policies influence consumer spending & saving patterns?
make more attractive to save
-lower taxes on super savings
-spend (abolition of consumption tax)
how does availability of credit influence consumer spending & saving?
credit CHEAP & readily available –> spending likely higher (creates new source of money for expenditure)
less likely to save if confident they’ll access credit easily in future
what are the two most significant factors that influence a consumer’s decision to spend/save?
LEVEL OF INCOME and AGE
is income rises, people tend to ____ a higher proportion of their income
save (APS rises, APC falls)
consumers on lower incomes spend proportionately ____ of their disposable income than people with higher incomes
more
income ^, dont need to spend as much of income on necessities
consumption function
-relationship between income & consumption
-upward slope with gradient <1
-positive y-int
because income rises ______ than consumption, the APC ___
faster, falls
Marginal propensity to consume (MPC formula)
proportion of each extra dollar of earned income SPENT on consumption
change in consumption /change in income
MPS (marginal propensity to save) & formula
proportion of each extra deollar of earned income NOT spent, SAVED for future consumption
change in saving/change in income
both denom change in income
MPC + MPS = ?
MPC + MPS = 1
each extra dollar of income earned either spent or saved
as a person’s income RISES, their MP to __ tends to FALL and their MP to __ tends to RISE
how is this shown in the consumption function (graph)
mpc FALLS –> mps RISES
therefore consumption function LESS STEEP as income RISES
when young, ppl tend to receive ____ levels of income bc they lack ____,____,____
Hnece, they tend to _ most of their income and save __/often or___ to finance their EDU
lower (income)
skills, exper, edu
spend
(save) very little
dis-save/borrow
ppl start working (esp middle age), incomes __, and will consume ___ proportion of income as they start saving & accumulating …. for ____.
(incomes) rise
smaller (prop)
assets
retirement
in retirement, ppl no longer ___ income from their ___, and they consume out of past ____ & wealth/rely on ______
earn (income) from labour
savings
GVT’s age pension
individuals on higher incomes tend to have ___ average propensity to consume than ___ income earners. why is this?
lower
lower
save more to accumulate wealth & assets for retirement whereas lower earners MUST use higher prop of income to meet costs of daily needs (living expenses)
what does the life-cycle theory of consumption looks like
triangle with line of consumption in middle
bottom left and right dissavings
peak is savings
school –> work –> retirement(x-axis age)
y-axis income)
utility
satsifaction individuals derive from consuming g&s
what does achieving higher utility mean?
individual satisfied more of their wants but more CONSTRAINED with ability to INCREASE utility by lvl of income & market price of g&s
main factors affecting consumer’s expenditure choices (IPS/CTA)
- level of INCOME
- PRICE of g/s
- price of SUBstitute/COMPLEMENT goods
- consumers TASTES & PREFERENCES
- ADVERTISING
how does level of income affect consumer expenditure choices?
earn higher incomes, tend to buy more items of higher quality
how does price of g/s itself affect consumer expenditure choices?
decide whether/not willing to pay nominated price for item given lvl of income
some goods necessities regardless price changes need to buy(price of basic food ^, demand will not reduce greatly, luxury items reduce demand when $^)
how does price of substitute & complement goods affect consumer expenditure choice?
QUANTITY of good demanded at time affected by PRICES of OTHER goods.
SUBS
(butter & margarine: price of margarine rises –> demand for butter increase)
COMPLEMENTS
tend to purchase together ($ iPhone falls, expect INCREASE in demand for iPhones & complements (airpods))
substitute good
good consumers may choose to buy in place of another good
complement good
good used in CONJUNCTION w/ another good
how do consumer tastes & preferences affect consumer expenditure choice?
individuals purchase g&s give them highest level of utility
some g&s give individual consumer higher lvl satisfaction than others
as consumer tastes & preferences change over time, so will demand for certain goods
-innovation & tech progress, demand new & better products at expense of superseded ones
how does advertising affect consumer expenditure choice?
can create demand for certain g/s non existed before.
-can make demand for g&s less RESPOSNIVE to price increases by building CUSTOMER LOYALTY to brands over time
consumer income
rewards to owners of FOP (sellign these)
consumers receive income from selling FOP , which are RWIP
- RENT from land
- WAGES from labour
- INTEREST from capital
- PROFIT from entrepreneurial skills
how do consumers receive income from wages (labour)?
wage/salary payments when participating in labour market
-main source of income
-includes non-wage income (fringe benefits, employer contributions to super, workers compensation payments)
how do consumers receive income from RENT (land)?
when rented, source of income
-iown investment property generates property income
how do consumers earn income from INTEREST (capital)?
RETURNS from ownership of capital
-wealth creates ongoing income through returnes from owning capital
-indirectly through super/other investment funds
-owning SHARES (earn dividends yrly)
-earn interest on savings in cash management accs/bonds
how do consumers earn income from PROFIT (entrepreneurship)?
operate businesses, make profit, income is return for entrepreneurial skill
social welfare payments
payments made to INCREASE income of individuals in need of assistance by GVT
incoem collected through taxation & transferred from GVTs to individuals
examples of transfer/social welfare payments
age pension (67+ & retired from work)
disability support pension
-permanent, physical/intellectual/psychiatric condition stops them from working
JobSeeker payment
(22-67 seeking work, unable to find, unemployed)
aim of social welfare
minimum income safety net allowing individuals w/ low incomes to purchase basic necessities
GVTs may raise transfer payments to increase consumer DEMAND & help eco growth
largest beneficiaries of welfare spending & fastest growing expenditure items in budget
elderly & disabled (least for ATSI )
aged care & National Disability Insurance Scheme