Economics

Question 1

What is money?

Answer 1

Money is any good that is widely used and accepted in transactions as a means of payment.

Question 2

What is currency?

Answer 2

Currency is a system of money used in a particular country.

Question 3

What is bartering?
What is a double coincidence of wants?

Answer 3

Before money, people would barter, exchanging goods or services between each other.
A double coincidence of wants is where each party in a situation wants something the other has.

Question 4

Disadvantages of bartering?

Answer 4

Finding someone with a double coincidence of wants can be difficult.
You cannot always divide the product when bartering, for example you cannot trade half a live cow.
Since there is no medium like money to value something, it is difficult to measure somethings worth. How many bananas is a fair swap for a cow?
Wealth in a barter system cannot always be stored and can perish. If you traded a cow for 50 bananas, what would you do with all those bananas?

Question 5

Is money itself valuable?

Answer 5

No. Today, materials to make money are not valuable; paper and metal are cheap.
What gives it value is that people accept it at its ‘face value’ - the value printed on it.

Question 6

Characteristics of money

Answer 6

For something to considered money, it must possess the following characteristics:
Durable
Must withstand being repeatedly used, lasting a long time.

Portable
Have to be able to carry money with you and transfer it easily with others.

Divisible
Should be able to easily divide into smaller units of value.

Acceptable
Everyone must be able to use money as a method of transfer, being confident that stores will accept it, knowing they can use it elsewhere.

Scarce
The amount of money in circulation should be restricted so the value remains constant.

Recognisable
Money must be to identify and difficult to forge, meaning it must have distinguishable features that make it recognisable. Common features found on money include serial numbers, complex patterns, and specific materials.

Question 7

Functions of money

Answer 7

Money is often defined in terms of the four functions it provides
Money serves as a:
Medium of exchange
Able to use it as a medium for transactions. Eliminates the need for a double coincidence of wants as money is accepted in all dealings, by all parties.

Standard of value
Money is important to serve as a ‘standard of value’. It allows you to value a good or service to compare it to others when selling/purchasing.

Standard deferred payment
When money is accepted as a way to value debt, money in the form of credit. This allows people to purchase goods and services and pay for them later.

Store of value
In order to be a medium of exchange, money must hold (store) its value over time. This means that wealth can be held in the form of money and spent later.

Question 8

Exchange rate

Answer 8

The amount that one currency is equivalent to when purchasing currency from another country.
It reflects how much another country is willing to pay for another’s goods and services.

Question 9

Factors that create demand for AU$

Answer 9

People overseas buying our products in their country.
Tourists visiting Australia.
Overseas companies investing in Australian ones.

Question 10

Factors that create a supply of AU$

Answer 10

Australian companies investing their money overseas.
Australians buying cheap imported products.
Australians travelling overseas rather than locally

Question 11

Is all money cash?

Answer 11

No. Money can take on forms other than cash thanks to electronic alternatives.

Question 12

What is a non-cash alternative of money?

Answer 12

Cheque. An instruction to a bank that tells them to transfer money from one persons accounts (payer of cheque) into another person’s account (payee).

Question 13

Electronic Funds Transfers (at point of sale)

Answer 13

At point of sale - paying in person.
EFTPOS
Electronic Funds Transfer at Point of Sale, EFTPOS. A system that allows you to instantly transfer money from your account to a business’ by swiping a card and entering a pin.

Contactless payments
A more advanced version of EFTPOS that allows the user to tap a card to purchase goods up to $100 without a pin. This technology allows for mobile phones and smartwatches to be tapped.

Question 14

Electronic Funds Transfers (not at point of sale)

Answer 14

Not at point of sale - buying online.
Direct debit
Allows the user to set up money transfers between their account and another. Can be used to automatically pay off bills, as long as your account has the funds for it.

BPay
Allows the user to use the internet or telephone to instantly transfer money from their account to a biller.

PayPal
An account-based system that allows users to securely send and receive payments for a small fee. Allows users to send and receive international payments without extra fees, and can shop online without having to share financial information.

Lay-by
An alternative that allows consumers to pay for a product in a store, slowly paying it off until it is paid in full, at which they can then receive the goods. Not very common any more as most people use credit.

Question 15

What are credit cards?

Answer 15

A popular method that allows you to swipe a card and immediately receive goods or services.
This is paid for using your bank’s money, which you have agreed to pay back later by a certain date with interest.
Limits are also set on cards, which are determined by the bank.

Question 16

Advantages of credit cards, list 4

Answer 16

More convenient to carry than cash.

Good in emergency when cash is not on hand, for example your car breaking down and having to hire a rental.

Many companies offer special rewards/benefits with cards such as frequent flyer points for free flights.

Most cards are accepted worldwide as a form of payment, so you do not always have to find cash.

Question 17

Disadvantages of credit cards, list 2

Answer 17

Having all this “free” money can tempt people to spend it even though they have to pay off the debt eventually.

Card details can be stolen via receipts and insecure websites. This can happen without you knowing, and you can have a debt on your statement and the bank may hold you legally responsible for it.

Question 18

What are some lenders of money?

Answer 18

Community banks
Typically locally owned, where lending decisions are made by people who understand the needs of local families/businesses.

Building societies
Similar to community banks, but they focus more on providing mortgages for purchasing homes.

Credit unions
Operate as banks but are owned and controlled by those who use them. Non-profit organisations that are occupation-specific, i.e., Teacher’s Union.

Financial companies
Usually service large organisations, funding developments and such.

Question 19

What is income?

Answer 19

Income: the money you earn from doing or selling something.

Question 20

Sources of income: income from employment

Answer 20

Wages
Income earned through the provision of labour (provision of physical/mental effort)
Paid at an hourly rate, which depends on the type of work, experience, etc.
Generally paid on a weekly basis.
Wage earners can receive penalty rates, where they are paid more for working outside set ours such as holidays.
Common form on income in retail and manufacturing.

Salaries
Also an income earned through the provision of labour.
Paid on an annual basis, which is then divided into pay periods, usually fortnightly/monthly.
They do not usually receive penalty rates but can earn extra income in the form of a bonus.
Common form of income in professional fields such as teachers and doctors.

Profit
The income received when operating a business.
Once costs of running a business are deducted, the remaining is profit.

Question 21

Income from other sources

Answer 21

Welfare payments
Income given to people who are unable to work through the provision of labour, provided by the government.
Also can be in the form of a pension, money given to retired people.

Royalties
Income can be earned through royalties, where you are paid for the use of your intellectual property (something produced by creative effort i.e., song, book), usually copyrighted or patented works.

Investments
Investments can generate income in the forms of dividends or interest.

Question 22

Why would one choose part-time or casual work?

Answer 22

One might choose part-time or casual work to:
Gain experience
Earn extra income in holidays/while studying
Pay bills while pursuing another career such as art/music
Being unable to work full-time

Question 23

Types of employment

Answer 23

Casual work
A casual job is a job with no set working hours.
They have lots of flexibility.
Usually the hourly rate is higher than permanent workers (full/part-time) as receive less benefits such as sick/annual leave.

Part-time work
A part-time job is one that employs you for less than a full working week (38 hours).
Part-time work guarantees working hours.
Has benefits such as sick/annual leave.
May get penalty rates, paid more for working outside set hours.

Full-time work
A full-time job is one that employs you for a full working week (38 hours).
Can also include overtime overtime hours with higher pay.
Has benefits such as sick/annual leave, unlike casual workers.
Also has more guaranteed job permanence, like part-time.

Short-term work contract
Jobs that have a definite end-date, which is set out in the contract. Usually one, three or 12 months.
People may choose short-term jobs because they don’t want to be in the same job for too long or are trying out new fields.
Often employees are offered another short-term contract when the existing one ends.

Question 24

What are needs?

Answer 24

Needs are things that are necessary for survival:
Food
Water
Clothing
Shelter

Question 25

What are wants? What types are there?

Answer 25

Wants are things we need and also things that make our lives more comfortable.
Types of wants include:
Recurrent
Occur repeatedly such as clothes and food.

Complementary
Paired with other wants, such as fuel for a car.

Unlimited
Will never be fulfilled and we will keep purchasing when we have the money.

Changeable
Change over time due to things such as age, fashion, and environment.

Question 26

Factors that influence wants

Answer 26

Most people’s needs are similar, but wants can differ due to factors including:
Age
A child would want different things to an adult.

Income
A rich person would want different things to a poorer person.

Fashion and tastes
People change their wants based on what is currently ‘in’ and fashionable.

Culture
People of different cultures would want different things due to religion, family structure, customs/traditions.
Wants in one culture may not even exist in another.

Values and attitudes
Some may respect the environment and choose to buy eco-friendly products, organic foods, and solar panels.

Environment
The environment of your surroundings affects the wants you have.
Someone in the Sahara would want cold water and sandals.
Someone in the Himalayas would want hot cocoa and a jumper.

Question 27

What are resources?

Answer 27

Resources are anything that we use in the production process (what we use to make goods).
Aka factors of production.

Question 28

What are the four main types of resources (aka factors of production)?

Answer 28

Land
Raw materials/natural resources.
Resources that occur naturally in the environment such as ores, fish and wood.
They can be exhaustible or renewable.
Exhaustible is if its supply cannot be replaced and will eventually run out, such as coal.
Renewable resources are available indefinitely as long as they are not over-used, such as fish and water.

Labour
The physical and mental effort that go into producing goods and services.

Capital
Often called “man-made resources”.
Final goods that have been made for the shelves or for providing services.
Includes machines and computers.

Enterprise
The use of skills, creativity, and innovation applied to create economic opportunities, an entrepreneur.
Entrepreneurs produce something different that people want.