Exam Revision

Question 0

What is opportunity cost?

Answer 0

The value of the second/next best alternative

Question 1

What is scarcity?

Answer 1

The basic economic problem unlimited wants are greater than infinite resources.

Question 2

What is Consumer sovereignty?

Answer 2

The ability of consumers to direct or allocate resources, supplies must respond.

Question 3

What is supply

Answer 3

The total amount of a product (good or service) available for purchase at any specified price

Question 4

What is unemployment?

Answer 4

Unemployment occurs when a person who is actively searching for employment is unable to find work.

Question 5

What is structural change?

Answer 5

An economic condition that occurs when an industry or market changes how it functions or operates. A structural change will shift the parameters of an entity, which can be represented by significant changes in time series data.

Question 6

What is seasonal?

Answer 6

Things that occur seasonally.

Question 7

What is Land?

Answer 7

What is in and on the ground. It includes minerals, water, forests, soil, animals, fish etc.

Question 8

What is Labour?

Answer 8

Physical and mental effort of people

Question 9

What is capital?

Answer 9

man made implements (producer goods) that aid in the production of other goods and services.
E.g. machinery, equipment, vehicles, telecommunications, roads etc.

Question 10

What is enterprise?

Answer 10

An organization that combines scarce resources for the production and supply of goods and services.

Question 11

Describe substitute good

Answer 11

Different goods that, at least partly, satisfy the same needs of the consumers and, therefore, can be used to replace one another.

Question 12

Describe complementary good

Answer 12

Material or good whose use is interrelated with the use of an associated or paired good such that a demand for one (tires, for example) generates demand for the other (gasoline, for example). If the price of one good falls and people buy more of it, they will usually buy more of the complementary good also whether or not its price also falls. Similarly, if the price of one good rises and reduces its demand, it may reduce the demand for the paired good as well. Also called complementary product.

Question 13

Describe recession

Answer 13

Period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer

Question 14

Describe productivity

Answer 14

A measure of the efficiency of a person, machine, factory, system, etc., in converting inputs into useful outputs

Question 15

Describe sustainable economic growth

Answer 15

Sustainable economic growth means a rate of growth which can be maintained without creating other significant economic problems, especially for future generations.

Question 16

Describe productive capacity

Answer 16

Productive capacity is a term used to define maximum possible output of an economy.

Question 17

Describe scarcity

Answer 17

The demands for resources that are higher than our ability to supply them.

Question 17

Describe opportunity cost.

Answer 17

The value of the second best alternative.

Question 17

What is a pure market economy?

Answer 17

A pure market economy is one in which governments do not play any role in the economy. In a pure market economy, the economy regulates itself. In a pure market economy, producers and consumers have the freedom to make their own economic decisions, without those decisions being guided or dictated by a central controlling mechanism

Question 18

How does a contraction in demand differ from an expansion in demand?

Answer 18

Contraction in demand means that people want less of the product and therefore that commodity will not make as much money while if there is an expansion people will buy more of the commodity and make more money.

Question 19

Define monopoly

Answer 19

A situation in which a single company or group owns all or nearly all of the market for a given type of product or service.

Question 20

Define oligopoly

Answer 20

A situation in which a particular market is controlled by a small group of firms.

Question 21

Define duopoly

Answer 21

A situation in which two companies own all or nearly all of the market for a given product or service.

Question 22

Australia has a market capitalist economy. Describe 3 key features of this system.

Answer 22

Factors of production are owned by the individuals.
Every individual has freedom to start business of his own choice.
All economic activities are guided by the motive of profit.

Question 23

Describe the law of demand. How does demand react with a rise in price?

Answer 23

law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. The law of demand says that the higher the price, the lower the quantity demanded.

Question 24

Describe the law of supply. How does supply react with a rise in price?

Answer 24

law that states, all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity offered for sale.

Question 25

What are the 4 types of unemployment? Give a definition for each

Answer 25

Cyclical- A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle.
Structural- A longer-lasting form of unemployment caused by fundamental shifts in an economy
Seasonal-seasonal unemployment definition. Periodic unemployment created by seasonal variations in particular industries, especially
industries such as construction that are affected by the weather.
Hardcore- A colloquial term referring to individuals who have never been employed full-time, or who have been unable to find employment for an extended period.

Question 26

What are the two causes of inflation? How might government policy respond to a period of inflationary pressure?

Answer 26

Cost Push Inflation
If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS. Can be caused by increased wages and changes in import prices.

Demand pull inflation
If the economy is at or close to full employment then an increase in AD leads to an increase in the price level. As firms reach full capacity, they respond by putting up prices, leading to inflation. Also, near full employment, workers can get higher wages which increases their spending power.

Question 27

What is the AD equation?

Answer 27

Aggregate Demand (AD) = C + I + G + (X-M) C = Consumers’ expenditures on goods and services. I = Investment spending by companies on capital goods. G = Government expenditures on publicly provided goods and services. X = Exports of goods and services. M = Imports of goods and services.

Question 28

How do the government control inflation by using interest rates?

Answer 28

The theory is that a rise in interest rates, and the corresponding limitation in money supply, will “damp down” excess demand and “take the pressure out of market”. The intention is to reduce households’ and firms’ willingness to buy goods and services through making credit more expensive.

Question 29

Why is it important for the government to control inflation?

Answer 29

Inflation reduces the purchase power of the local currency and causes wages and the cost of the inputs of production to spiral higher. It makes interest rates higher and financially damages lenders who will be paid back in less valuable currency. This creates an unstable environment for those running and planning businesses.

Question 30

How does the ABS measure unemployment?

Answer 30

They take surveys of everyone in Australia to get a rough idea of how many people are employed.