topic 1-intro to ecomomics Flashcards
define wants
can be defined as the material desires of individuals or the community.
define individual wants
individual wants are the desires of each person. an individual’s desires depend on personal preferences but can be influenced by broader social trends.
what is the economic problem?
our wants are unlimited however resources are scarce, since we cannot satisfy everyone’s wants we must choose between them.
true or false
are our wants unlimited?
true
define recurrent wants
recurrent wants are wants that reoccur that we must satisfy such as clothes, petrol, and newspapers.
define complementary wants
complementary wants are said to be if its naturally follows the initial satisfaction of another want for instance when you satisfy the want for a car, you will also want petrol and car assesories.
what usually affects the change in our wants?
the factors include age, income, technology and fashion
define opportunity cost
also referred to as the real cost, it represents the cost of satisfying one wants over an alternative want.
how can opportunity cost be applied to individuals, businesses and government?
the individual consumer, with limited resources, may choose between satisfying her desire for a car and an overseas holiday
the business firm must also make a choice in the allocation of its scarce resources. an entrepreneur who decides to produce a computer gives up the opportunity to produce something else such as electrical appliances
the government has limited resources that it can use to satisfy community wants if the government allocates resources to constructing a new fleet of submarines it may be at the expense of a new airport
what are the 4 economic problems?
- what to produce
- how much to produce
- how to produce
- how to distribute the production
what is the production possibility frontier?
the production possibility frontier is a graphical representation of all the possible combinations of the production of two goods to services that the economy can produce at any given time.
what are consumer goods?
consumer goods are goods that satisfy consumer demand immediately
what are capital goods?
capital goods are items that have not been produced for immediate consumption but will be used for the production of other goods.
how does economic decision-making have future implications for individuals, businesses and governments?
for individuals if that individual decides to go without an overseas holiday and instead take out a mortgage and purchase a house. Saving up for a deposit will present a significant sacrifice for many individuals
a business must choose to focus on one area of business activity over another. businesses have a limited amount of labour, capital, entrepreneurial skills and other resources so they must focus on the products in which they are likely to maximise profit.
the decisions of the government shave very important long-term implications, both for governments themselves and for the entire economy. A government may choose to give the highest priority in its spending to satisfy immediate needs, such as increased welfare benefits and health care. AS a result, it may provide less funding for other areas of expenditure such as education, infrastructure, and research and development
examples of consumer goods
water, food, shoes, clothing, beverages
example of capital goods
machinery, tools, buildings, vehicles and computers
describe the cost and benefit of producing capital goods in an economy
while capital goods do not satisfy consumers’ wants now, they will allow us to satisfy these wants in the future by expanding our ability to produce, this is the benefit and the cost is that at the current time, our wants aren’t satisfied.
outline a possible future economic benifit for each of the following choices
1. saving money in a bank account
2. pursuing tertiary education
3. working beyond the retirement age
- savings can increase because of interest rates meaning that our wants can be satisfied in the future with the increased amount of money
- the education that we get will benefit us in the future when we look for jobs that are hiring with specific tertiary education requirements
- working beyond the retirement age will allow them to have more savings and earnings which will later benefit the wants and needs of the retired individual in the future. as well as additional return on investment assets, potentially lower the cost of purchasing an annuity, additional retirement contributions
why would the economic factors underlying decision-making by individuals include
1. spending
2. saving
3. work
4. education
5. retirement
6. voting
7. participation in the political process
1&2; Whatever their level of income, individuals must make a choice about how much of that income they will save and how much they will spend
3.the individual’s ability to consumer will be restricted by their limited income when a couple decides to start a family, they may have to cut down on their personal expenditure and one partner may have to reduce their working hours and income to care for younger children
- the decision to undertake further education may involve forgoing income for several years, although in most cases it will be rewarded with high income in the longer run.
Define “economic problem”
- Finite resources mean they are limited and can run out.
- Our wants are unlimited
Define “consumer goods”
Consumer goods are items produced for the immediate satisfaction of individual and community needs and wants.
What does GDP stand for and what is it?
Growth domestic product measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time
Name benefits of competition to consumers.
lower prices, higher quality, more choices.
What policy does the RBA use and how does it work?
The RBA uses monetary policy to control inflation and interest rates as well as control the supply of the money.
define “factors of production”
factors of production are any resources that can be used in the production of goods and services. The main four types are natural resources (or land), capital, labour and enterprise
what is the outcome of the production process
goods and services
match the following
1. goods
2. services
- are intangible acts that are the benefit to us
- are tangible things such as goods, cars and electronics
1 goes with 2
2 goes with 1
what are the 4 main types of resources?
capital, labour, enterprise and natural resources.
what are the rewards for capital, labour, enterprise and natural resources?
capital-interest
natural resources-rent
labour-wages
enterprise-profit
what is the produced means of production?
capital
what is the reward to the owners of labour?
wages
define enterprise
enterprise involves organising the other factors of production(natural resources, labour and capital) for the purpose of producing goods and services
what is returned to the enterprise as the reward
profit
what are the limits with each of the 4 resources?
- labour
- natural resources
- capital
- enterprise
labour
- our supply of labour is limited by our population size, labour market skills and people’s willingness to work
natural resources
-there are limits to the amount of natural resources available for production, including land, fossil fuels or even clear air and water
capital
-our supplies of capital are limited by the extent to which governments and private sectors are willing to invest, as well as the level of domestic(or overseas) savings available for investment
enterprise
- the supply of entrepreneurial skills is also limited by the size of the population and a range of other cultural and economic factors including the ability and willingness of individuals to innovate and take risks.
what are the disadvantages of bartering?
the barter system are inability to make deferred payments, lack of common measure value, difficulty in storage of goods, and lack of double coincidence of wants.
define the business cycle
the business cycle refers to fluctuations in the level of economic growth due to either domestic of international factors.
define recessions
recessions are the stage of the business cycle where there is decreasing economic activity, defined as two consecutive quarters(6 months) of negative economic growth, that is, a fall in GDP
what is bartering
the non cash exchange of goods and services
when was the last recession?
2020 during covid
what are the factors influencing individuals economic decisions
age, income, future plans and expectations, family circumstances, attitudes towards risks
these influence our wants which are always changing
everyone has different preferences and plans that change all the time
what are the factors influencing business economic decisions
- pricing strategies
-have a key trade-off to consider - A higher price means you make more on each unit you sell but its also likely you sell less cause of the increase. So your income might go up or down
-however if the price is lower, you make less per unit, however you will most likely sell more once again income might go up or down
- marketing strategies
-the price depends on the target market
prices set to appeal to the target market - cost minimisation
big objective- increase profits and depends on resources
-business have to choose whether to buy high-quality equipment and supplies that
-last longer
-lead to more productivity
-however are more expensive
on the other hand if businesses buy lower-quality equipment
-than it will be cheaper
- but more likely to break or fail
- ethical issues
when activities of the business impact the environment and society
- extra costs to preserve the environment
or
-sacrifice environment to save money
- industrial relations
decisions regarding staff
-paying more which encourages better performance or pay minimum wage
what are the things businesses must consider when making decisions
pricing strategies
marketing strategies
cost minimisation
ethical issues
industrial relations
and in all these factors there are trade offs
what are the factors influencing governments in their economic decisions
where the government spends its money and gets its taxes from
spending and taxation policies have impacts on individuals and business
have to choose between satisfaction of immediate or long term needs
Individual economic decision-making has a large focus on patterns of spending and saving.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
a
Which of the following is least likely to influence individual decision-making?
2018 Atomi Question
A
(Choice A)
Age
B
(Choice B)
Social connections
C
(Choice C)
Income
D
(Choice D)
Future expectations
b
Mary is a 65 years old, earning a large salary and preparing for retirement. She is likely to spend a greater proportion of her income than a university student.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
Which of the following is the least important consideration when businesses decide what prices to set for their goods and services?
2018 Atomi Question
A
(Choice A)
Profit margins on each unit
B
(Choice B)
Impact of price on demand
C
(Choice C)
Appealing to the target market
D
(Choice D)
Number of employees
d
When businesses try to minimise costs, they will almost always buy the cheapest equipment possible.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
Why would a business decide to pay their employees above the minimum possible standard?
2018 Atomi Question
A
(Choice A)
To increase the costs of production and make the output more expensive
B
(Choice B)
To fairly distribute business profits throughout the business
C
(Choice C)
To encourage labour to work harder and be more loyal
D
(Choice D)
To increase spending in the economy by increasing disposable incomes
c
Which of the following is not an ethical decision that must be made by businesses?
2018 Atomi Question
A
(Choice A)
Reducing environmental damage
B
(Choice B)
Testing product safety before release
C
(Choice C)
Ensuring safe and fair working conditions for labour
D
(Choice D)
Improving product quality
d
Which of the following is something that the government would choose to tax?
2018 Atomi Question
A
(Choice A)
Education
B
(Choice B)
Roads
C
(Choice C)
Healthcare
D
(Choice D)
Pollution
d
What are the main ways governments make economic choices?
2018 Atomi Question
A
(Choice A)
Determining patterns of spending and taxation
B
(Choice B)
Attempting to be re-elected
C
(Choice C)
Implementing regulations
D
(Choice D)
Promoting Australia’s image overseas
a
what are the factors of production
they are the resources and inputs used to make goods and services
what are the 3 tangible factors of production
land
labour
capital
what are the 1 intangible factor of production
enterprise
what is the factors of production acronym
LLCE
what is LLCE in the factors of production
labour
land capital
enterprise
what is labour
the productive effort of workers to make goods and services
what is the reward for labour
wage/salary
why is labour important
because more work leads to more better quality of work leading to higher wages thus the encouragement to work harder for longer
wages are an incentive for hard work
what is capital
capital in the factors of production sense refers to the machines used to produce output
what is the reward for capital
interest
those who supply means for capital receive interest in return
what is land in the factors of production
the natural resources like water, oil and timber as well as literal space to locate a business
what is the reward for land
rent
income somebody gets for providing natural resources
what is enterprise in the factors of production
enterprise(entreprneurship)
- an entrepreneur starts a business
what is the reward for enterprise
profit
Which of the following is NOT one of the four key factors of production?
2018 Atomi Question
A
(Choice A)
Land
B
(Choice B)
Labour
C
(Choice C)
Capital
D
(Choice D)
Infrastructure
d
Each of the factors of production is rewarded by a specific type of income.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
a
Which of the following is NOT an example of a factor of production classified as land?
2018 Atomi Question
A
(Choice A)
Water
B
(Choice B)
A forest
C
(Choice C)
A factory
D
(Choice D)
The benefits from a particular climate
c
Only workers engaged in manufacturing and physical activities are classified as labour.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
Which of the following does NOT influence the size of the labour supply?
2018 Atomi Question
A
(Choice A)
Birth and death rates
B
(Choice B)
Immigration rates
C
(Choice C)
School leaving and retirement ages
D
(Choice D)
Training and education programs
d
What kinds of inputs are classified as capital?
2018 Atomi Question
A
(Choice A)
Machines that are used to make output in the future
B
(Choice B)
Ones owned by the government
C
(Choice C)
The loyal employees retained by a business
D
(Choice D)
Deposits of natural resources being mined by a business
a
How is entrepreneurship described as a factor of production?
2018 Atomi Question
A
(Choice A)
Risk-takers who supply products to a market to make a profit
B
(Choice B)
Those who own factories and hire labour
C
(Choice C)
People who invest in new businesses by providing financial capital
D
(Choice D)
Owners of assets who seek rent in return
a
What type of income is provided in return for land?
2018 Atomi Question
A
(Choice A)
Wage
B
(Choice B)
Rent
C
(Choice C)
Profit
D
(Choice D)
Interest
b
Which of the following is NOT a reason that a business would reward labour with higher wages?
2018 Atomi Question
A
(Choice A)
They’re harder working
B
(Choice B)
Their skills are common among the population
C
(Choice C)
They’re more highly educated
D
(Choice D)
Their productivity levels are higher
b
does factors of production determine how much output there is
yes because the amount of FOP has aswell as the quality of them is a massive determinant of how much the economy can make (GDP)
why?
because output uses up factors of production
no FOP = no outputs
what is distribution
how we decide how much of the economys output each person gets
Which factor of production is said to be intangible?
2018 Atomi Question
A
(Choice A)
Labour
B
(Choice B)
Land
C
(Choice C)
Capital
D
(Choice D)
Enterprise
d
Why are the factors of production considered so valuable?
2018 Atomi Question
A
(Choice A)
Everyone has factors to offer
B
(Choice B)
They are limited in supply
C
(Choice C)
Factor inputs are expensive
D
(Choice D)
There lots of different types of factors
b
In an efficient market economy, who gets the biggest share of output?
2018 Atomi Question
A
(Choice A)
Those who contribute the most inputs
B
(Choice B)
Those who hold the most power in the country
C
(Choice C)
Those who most need the output
D
(Choice D)
Those who have the most people working for them
a
A person who provides the most labour will always receive the greatest wage.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
Consumers only receive wages as income since their main contribution to production is labour.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
A rich businessman has a million dollars he wishes to invest in a business. Which factor of production is this money classified as?
2018 Atomi Question
A
(Choice A)
Labour
B
(Choice B)
Land
C
(Choice C)
Capital
D
(Choice D)
Enterprise
c
In general, higher levels of education result in higher levels of income.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
a
What system of exchange does the economy use to ensure that those who contribute the most receive the most output?
2018 Atomi Question
A
(Choice A)
Barter
B
(Choice B)
Central planning
C
(Choice C)
Money
D
(Choice D)
Negotiation
c
What is the primary advantage of rewarding those who contribute more factor inputs with a greater share of output?
2018 Atomi Question
A
(Choice A)
Encourages high levels of consumption
B
(Choice B)
Acts as an incentive to contribute
C
(Choice C)
Supports fairness and equality
D
(Choice D)
Ensures that all needs and wants are fulfilled
b
What is a way that our system of distributing economic output encourages inequality and unfairness?
2018 Atomi Question
A
(Choice A)
Different skills are not fairly valued by society
B
(Choice B)
People without capital cannot support themselves
C
(Choice C)
Land and capital are disproportionately valued against labour
D
(Choice D)
Disadvantaged groups have fewer factors to contribute
d
what is a boom
sustained periods of above average growth
what are the impacts of a boom in the economy
- lower savings and higher spending
- businesses need to hire more workers for higher output. leading to lower unemployment - businesses will make a lot of investment into capital equipment, to produce more
- increased quality of life(people consume more and find work more easily) - inflation = price rise
-consumer demands grow too fast for businesses
what are the impacts of troughs
throughs/ recession = 2(consecutive) quarters of negative economic growth(shrinks for half a year)
- people worry about job security –> save more, consume less
- businesses forecast lower demand –> less investment into capital
- businesses forced to lay off workers –> Unemployment rises
in the end there is less production and consumption –> quality of life decreases
What tendency of the economy does the business cycle describe?
2018 Atomi Question
A
(Choice A)
Changing popularity of businesses due to shifting consumer demand
B
(Choice B)
Altering the consumption of factors of production to improve efficiency
C
(Choice C)
Experiencing alternating periods of growth and contraction
D
(Choice D)
Developing success of businesses over time
c
Economies often experience continual, ongoing growth for decades at a time.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
Which of the following does NOT encourage economic growth?
2018 Atomi Question
A
(Choice A)
Consumption
B
(Choice B)
Investment
C
(Choice C)
Production
D
(Choice D)
Saving
d
The business cycle is influenced by fluctuating consumer confidence, which influences the level of economic activity.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
a
What do people start to do when they believe the economy is going to slow down?
2018 Atomi Question
A
(Choice A)
Increase consumption, reduce savings and invest more
B
(Choice B)
Reduce consumption, increase savings and invest less
C
(Choice C)
Increase consumption, increase savings and invest more
D
(Choice D)
Consumption, savings and investment stay the same
b
An economic boom is a sustained period of below average economic growth.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
Which of the following is NOT a common impact of economic booms?
2018 Atomi Question
A
(Choice A)
Increased consumption
B
(Choice B)
Decreased unemployment
C
(Choice C)
Increased inflation
D
(Choice D)
Decreased investment
d
Why does unemployment decrease during economic booms?
2018 Atomi Question
A
(Choice A)
Firms need to hire more workers to meet rising demand
B
(Choice B)
More people need to earn incomes to sustain ongoing consumption
C
(Choice C)
Firms want to increase the costs of production
D
(Choice D)
Firms are willing to spend more to increase economic efficiency
a
Why does inflation occur during economic booms?
2018 Atomi Question
A
(Choice A)
Businesses raise their prices because demand grows more quickly than supply
B
(Choice B)
Businesses lower their prices because supply grows more quickly than demand
C
(Choice C)
Businesses raise their prices to earn greater profit margins
D
(Choice D)
Businesses lower their prices to become more competitive
a
How many consecutive quarters of negative growth are required in order for a contraction to be called a recession?
2018 Atomi Question
A
(Choice A)
1
B
(Choice B)
2
C
(Choice C)
3
D
(Choice D)
4
b
Australia experienced a recession during the Global Financial Crisis of 2008.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
The government tries to make economic booms smaller and the recessions less deep.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
a
what is the circular income model
where money goes in the economy
what is the key roles of economies
allow production, exchange and consumption of goods and services
wat are the 3 other places money goes go besides consumer and businesses
the financial sector(all banks)
government sector
international sector
what is the injection and leakage relationship between the financial sector
Leakages are the savings
injections are the investments
what is the private sector
the part of the economy that is run by individuals and companies for profit and is not state controlled
what is the injection and leakage relationship between government sector
leakages are taxation
injections are expenditure
what is the difference between taxation and expenditure called
budget balance
why is imports leakages
because australians are paying for overseas items therefore money leaves australis
why are exports leakages
because when we sell, we get money in return
i.e selling coal to china
what does the circular flow of income predict
equilibrium
-the economy is in a steady state(neither growing nor shrinking)
equilibrium happens when total injections(investment, govt spending, exports) = leakages(savings, imports, taxation)
disequilibrium
-the economy is at an unstable rate(will expand or contract)
it will always reach equilibrium
Between which two major actors does most economic exchange take place?
2018 Atomi Question
A
(Choice A)
Households and government
B
(Choice B)
Households and businesses
C
(Choice C)
Businesses and government
D
(Choice D)
Businesses and financial institutions
b
What is the key focus of the circular flow of income model?
2018 Atomi Question
A
(Choice A)
The interest that money accumulates whilst in financial institutions
B
(Choice B)
The payment people receive in return for their factors of production
C
(Choice C)
The use of money by businesses to create new goods and services
D
(Choice D)
The way money moves between different factors in the economy
d
Consumers can only be part of a household.
2018 Atomi Question
A
(Choice A)
True
B
(Choice B)
False
b
How are households directly rewarded for the labour they supply to businesses?
2018 Atomi Question
A
(Choice A)
Goods and services
B
(Choice B)
Income
C
(Choice C)
Interest
D
(Choice D)
Profit
b
What do households demand from businesses?
2018 Atomi Question
A
(Choice A)
Employment
B
(Choice B)
Goods and services
C
(Choice C)
Income
D
(Choice D)
Entertainment
b
what is the pure markets alternative name
laissez-faire meaning no government intervention
consumers do everything
what is a planned economy
the government makes all decisions about how the factors of production should be used, what should be used and each share of output each person gets
what are the advantages of a pure market economy(laissez-faire)
- consumers signal what they want through consumer sovereignty
- businesses set up in response, using freedom of enterprise rights
3.businesses compete for consumers -cheaper products at lower costs
- privately owned property - incentive to get richer and work harder
what is the characteristics of the laissez-faire economy
it tends to minimise waste and maximise profits
products are only created for what consumers want to be produced
key components
1. private ownership of property
meaning people own their own property and can do as they like, businesses keep all profits
- consumer sovereignty
-consumers can choose to spend their money on what they want
-businesses produce what consumers are willing to spend their money on
which answers what to produce and how much to produce in the economy - freedom of enterprise
- allowed to set up any business to make a profit
-demand for a good or service leads to entrepreneurs starting up businesses
which answers how to distribute - competition
-many businesses compete for customers
-better products at lower prices
-benifits: lower price + cheaper costs
this helps to answer how to produce(cause of the minimising of waste)
what are the characteristics of a planned economy
the government figures out how to answer all the production questions
e.g. govt runs public transport
when governments try to solve the production problems(questions) by themself resources are wasted trying to answer the production questions
why is government intervention good
because they fix key problems
- inequality
-inequality between people
-the poor don’t have capital or opportunities to start a business meaning the rich stay rich and the poor stay poor
-the wealthy retain education qualifications
the government redistributes income to try and fix this problem through
progressive taxation, welfare
-thus ensuring the poor have a safety net and can avoid poverty
= equal standard of living
- resource allocation
-resources not allocated effectively
-businesses supply what consumers want however some g/s are under-provided - too hard to make people pay for i.e. roads - instability
business cycle moves according to consumer and business sentiment
-government smooths out fluctuations in the Business cycle - environment
Businesses don’t face consequences for polluting the environment. max profits and ignore damage
what is the a mixed economy
where the economy takes the benefits and efficiency of the laissez-faire economy and the govt correction of market failure in the planned economy
What is the government’s role in a pure market economy?
2018 Atomi Question
A
(Choice A)
To enforce property rights
B
(Choice B)
To regulate business production
C
(Choice C)
To set prices
D
(Choice D)
To tax demerit goods
a
why should there be government intervention in an economy
because of
inequality
resource allocation
instability
environment
what is progressive taxation
where the more you earn the more you get taxed
what are the three key points of the allocation of resources and why the government needs to be involved
- some products are not provided because there’s no profit available
2.businesses run to make profit, not benifit consumers i.e higher prices in eduation - undesirable products over produced; people don’t consider negative impact i.e tobacco companies through taxation
what type of countries are usually planned economies
communists
i.e china, Sweden, denmark
what are merit goods
a commodity or service such as education,
what type of countries are usually free markets
capitalists
i.e hong kong, australia, singapore
