Topic 2 Revision

Question 1

What is specialization?

Answer 1

Specialization occurs when a nation or individual concentrates its productive effort on producing a limited variety of goods and services that they consume. They become experts in particular areas and it oftentimes has to forgo producing other goods, and relies on obtaining those other goods and services they want to consume through trade

Question 2

What is division of labour?

Answer 2

Division of labor occurs where production is broken down into many separate tasks. It can raise output per person as people become proficient through constant repetition of a task. The gain in labor productivity helps to lower the supply cost per unit. Reduced cost supply in theory will lead to lower prices for consumers of goods and services causing gains in economic welfare.

Question 3

What is the production process?

Answer 3

Production is a process in which economic resources (composed of natural resources like land, labor and capital equipment) are combined by entrepreneurs to create economic goods and services that are supplied to meet our needs and wants

Question 4

Why does trade make people better off?

Answer 4

Trade makes people better off because it allows people to specialize in producing goods and services that they have a comparative advantage of. Then by trading, people can have access to a greater range of goods and services at a lower cost.

Question 5

What is the tragedy of the commons?

Answer 5

The tragedy of the commons occurs when people in a community exploit shared resources to the point of completely depleting them.

Question 6

Tragedy of the Commons example

Answer 6

For example, a group of cattle farmers share a piece of land on which their cows can graze. Each farmer knows that the more cows he raises, the more profit he can make in the end. However, keeping more cows means greater damage will be done to the grass wherever they graze. If every farmer decides to keep increasing the number of cows in their herd, the land will be overgrazed

Question 7

What are the 5 sectors of the Australia mixed market economy?

Answer 7

1. Household sector
2. Business sector
3. Financial sector
4. Government sector
5. Overseas sector

Question 8

Household sector

Answer 8

• made up of individuals
• they provide their time and skills or ‘labor’ to firms in exchange for income
• they are consumers who buy goods and services from firms
• they may borrow from, or save money with the financial sector
• they pay taxes to the government

Question 9

Business sector

Answer 9

• they are made up of all the businesses in the economy
• they produce output (goods and services), which they sell to customers and receive revenue (profit)
• they may borrow money from, or save money with, the financial sector
• they pay taxes to the government

Question 10

Financial sector

Answer 10

• made up of banks and other financial institutions in the economy
• they receive taxation revenue from households and firms
• they spend this money on public goods and services such as roads, parks and schooing

Question 11

Overseas sector

Answer 11

• this sector relates to Australia’s trade with other nations
• Australia imports and exports goods and services to and from other countries

Question 12

Which sector do I think has the greatest influence on Australia’s mixed market economy?

Answer 12

Business sector:
1. it is businesses that provide jobs to the household sector, and allows individuals to earn wages and therefore feed their families, buy goods and services, etc.
2. businesses produce goods and service which are essential because they are needed to meet the needs and wants of the population
3. they allow trade amongst Australians, which boosts the economy, and also allows international trade which not only strengthens Australia’s connections with foreign countries, but also brings revenue
4. fosters community wellbeing and promotes social and economic inclusion

Question 13

What is an economic system?

Answer 13

It is a system for producing and distributing goods and services to fulfill people’s wants It answers the three basic economic questions for a nation or society - it determines production, distribution and consumption.

Question 14

What are the 6 economic goals of an economy?

Answer 14

1. economic stability
2. economic equity
3. economic growth
4. economic freedom
5. economic efficiency
6. economic security

Question 15

What are the 2 main features that describe all types of economic systems?

Answer 15

1. the system used for economic decision making (planned or market)
2. the system of ownership (socialism or capitalism)

Question 16

Features and economic goals of a traditional economy

Answer 16

features: custom, ritual and tradition determine what is produced, how it’s made and who consumes it
economic priorities: economic stability and security

Question 17

Features and economic goals of a market economy

Answer 17

features: all economic decisions are made by individuals and businesses, with no government regulation
economic priorities: economic freedom, growth, efficiency

Question 18

Features and economic goals of a command economy

Answer 18

features: all economic decisions are made by the government, usually a dictator
economic priorities: economic stability and equity

Question 19

Features and economic goals of a mixed economy

Answer 19

features: all economic decisions are made by the government and individuals
economic priorities: economic freedom, efficiency, stability, and growth

Question 20

How does a market economy determine the allocation of resources?

Answer 20

• businesses decide what to produce based on supply and demand and free enterprise (price). essentially, the customers decide what producers produce, as their purchases will influence supply and demand.
• Businesses will decide how to produce those goods, but it is usually produced in the most cost effective way
• in a free market economy, those who have more money are able to buy more goods and services

Question 21

How does a government planned economy determine the allocation of resources?

Answer 21

All three economic questions are decided through government planning

Question 22

How does a mixed economy determine the allocation of resources?

Answer 22

• what to produce is determined by both consumer preferences and partly by the government - both wants and needs are produced
• how to produce is mostly determined by businesses, but the government may regulate certain industries
• the goods and services are provided for those who can afford it, however the government may regulate how much or how often you can buy the product

Question 23

How does a traditional economy determine the allocation of resources?

Answer 23

• what to produce depends on what is available through hunting, gathering and growing foods
• customs and religious beliefs may influence the question of “how to produce”
• production is usually shared, answering the question of “for whom to produce?”

Question 24

What is a fair trade agreement?

Answer 24

A fair trade agreement is a treaty between two or more countries designed to reduce or eliminate certain barriers to trade and investment, and to facilitate stronger trade and commercial ties between participating countries.

Question 25

Advantages of an FTA

Answer 25

• increased economic growth
• lower government spending
• more dynamic business climate

Question 26

Disadvantages of an FTA

Answer 26

• increased job outsourcing
• theft of intellectual property
• crowding out domestic industries

Question 27

What is the difference between an import and export?

Answer 27

An import is a good or service which has been produced in a different country which was brought into Australia to be sole. An export is a good or service which has been produced in Australia and is sold to other countries.