Economics AOS2

Question 1

Define Market

Answer 1

A market is a place or situation where buyers and sellers of goods and services meet to exchange a good or service.

Question 2

Characteristics of a perfectly competitive market

Answer 2

Many buyers and sellers
Little to no barriers to entry/exit
No product differentiation
Perfect information from buyers and sellers
Example: Farmers markets

Question 3

Define demand

Answer 3

The willingness and ability of buyers or consumers to purchase a good or service given price

Question 4

Law of demand

Answer 4

As the price of a product increases the total quantity demanded will decrease

Question 5

Identify and define all of the non price factors that affect demand

Answer 5

Disposable income - Amount of money expendable after tax.
Substitute goods - A product that can easily be used in place of another
Complement products - Products that are typically consumed together (coffee and sugar)
Preferences - Tastes change over time with changing trends and attitudes
Population - A growing population will increase demand due to more people
Consumer confidence - Attitudes or expectations to a product or future of the economy
Gov intervention - Subsidies, taxes and regulation

Question 6

Difference between a shift and movement along the curve

Answer 6

A movement goes along the demand or supply curve and is due to price.
A shift is the demand or supply curve moving due to non price factors.

Question 7

Define supply

Answer 7

Supply is the willingness of producers to produce and or sell goods or services

Question 8

Law of supply

Answer 8

If the price of product increases so will the total quantity supplied

Question 9

Identify and define all of the non price factors that effect supply

Answer 9

Cost of production - Costs of labour, capital and raw materials
Technological change - Advance in technology increases the efficiency of production and its sale
Productivity growth - An increase in the efficiency of the business converting inputs into outputs
Climatic conditions - Climate and weather that impact a businesses ability to produce a variety of gods and services
Disruptions - Significant events such as war and Covid
Gov intervention - Subsidies, taxes and law/regulation

Question 10

Describe and illustrating changes in supply and demand graph structure

Answer 10

Define the impact,
Link the cause to supply or demand (increasing or decreasing)
Describe what happens on the graph (Shift of demand and supply curve, unfavourable/favourable)
Describe the outcome of the change (Impact on equillibiram price and quantity).

Sample:
(Impact of rise in disposable income on market for luxury cars)
Disposable income refers to the amount of expendable income available after tax and fixed expenses. The impact of a rise in disposable income on the market for luxury cars would likely result see an increase in demand and a favourable shift of the demand curve to the right on the supply and demand curve (figure 1). Therefore, if supply remains constant, the impact of this change would result in a higher equilibrium price where price increases from P to P2 and the equilibrium quantity would increase from Q to Q2.

Question 11

Define the equilibrium point

Answer 11

Point: Occurs when the quantity demanded is equal to the quantity supplied.

Question 12

Define price mechanism

Answer 12

Price mechanism is where the forces of supply and demand directly determine the prices of commodities.

Question 13

Define relative prices

Answer 13

A relative price is the price of a product measured in comparison to the price of another product

Question 14

Explain how a rise or fall in relative price can impact resource allocation in an economy

Answer 14

Example: A price change can impact demand, this will change profitability and indicate to producers on their resource allocation.

Question 15

Characteristics of monopolistic competition

Answer 15

Large number of buyers and sellers
Lack of homogenous products (Businesses try to differentiate themselves and look unique)
Little to no barriers to entry
Perfect information about products
Example: Restaurants, hair salons, household items, and clothing

Question 16

Characteristics of an Oligopoly

Answer 16

Small number of buyers and sellers dominate market
High barriers of entry (Set up costs)
Imperfect information where suppliers possess more info about products
Example: Airlines, cars, Coles and Woolies

Question 17

Characteristics of Monopoly

Answer 17

Only 1 seller dominates
Very high barrier to entry
Natural monopoly occurs when it makes sense for only one producer to operate in market
Example: AusPost

Question 18

Define Market Power

Answer 18

The ability of any particular business (or group of businesses) to control or manipulate prices or quantities in a market

Question 19

Compare levels of market power to market structures

Answer 19

Most competition and least concentration: Monopolistic competition
Least competition and most concentration: Monopoly

Question 20

Explain relationship between level of market power and prices

Answer 20

As markets become more concentrated (and less competitive), there is a tendency for prices to increase.
As markets become more competitive, prices tend to be lower

Question 21

Explain relationship between level of market power and resource allocation

Answer 21

Resources are allocated more efficiently in competitive markets, technical and allocative efficiency tend to be higher.
Less competitive markets can result in resources being under-allocated to a particular product, lower allocative efficiency and less pressure means lower technical efficiency.

Question 22

Explain relationship between level of market power and living standards

Answer 22

Increased competition can lower prices and allow a greater access of products to consumers, increasing non material living standards.
Increased competition can lead to unethical practices such as labour and environmental exploitation, which could decrease non-material living standards.

Question 23

Describe price discrimination

Answer 23

Price discrimination involves charging consumers different prices for the essentially same product. (First, business and economy class seats on a plane)

Question 24

Describe multiple branding

Answer 24

Multiple branding is individual companies marketing their products under separate and distinct brand names. (Cocacola branding Fanta and Powerade different)

Question 25

Describe predatory pricing

Answer 25

Predatory pricing occurs when a company sets it prices at a sufficiently low level with the purpose of damaging a competitor, or forcing a competitor to withdraw from the market.
(Qantas offering ridiculously cheap regional flights to squash out smaller competition such as Rex)

Question 26

Describe cartel conduct

Answer 26

Cartel conduct is when two or more businesses join forces to maximise profits, occurs mostly in highly concentrated markets (oligopoly/duopoly)
(Rumors of Coles and Woolies colluding to raise prices)

Question 27

Describe the role of the ACCC

Answer 27

The ACCC exists to promote competition and fair trade in markets to benefit consumers, businesses, and the community.
Example: The ACCC started legal proceedings against Telstra, Optus and TPG for misleading consumers about internet speeds.

Question 28

Outline the purpose of the Competition & Consumer Act 2010

Answer 28

The Act promotes fair trading between competitors while also ensuring that consumers are treated fairly.