Topic 2: Understanding the Economy pt2

Question 1

Describe and list the role of a ‘producer’

Answer 1

Produce goods and services
Aim to make a profit
Pay wages & taxes

Question 2

Describe and list the role of a ‘consumer’

Answer 2

Buy goods and services
Earn wages and salaries
Receive government benefits

Question 3

Describe and list the role of the ‘government’

Answer 3

Charge taxes
Spend on goods and services
Provide benefits and services to Australians

Question 4

Describe and list the role of ‘financials’

Answer 4

Hold savings
Lend money
Aim to make a profit

Question 5

Define the ‘business sector’…

Answer 5

Is made up of:

A large number of producers, all seeking to provide goods and services to satisfy the needs and wants of households

Question 6

Define the ‘household sector’…

Answer 6

Is made up of:
- A large number of individuals all seeking to purchase goods and services to satisfy their needs and wants.

• In order to do so, individuals work in the business sector providing the labour of resources to earn salaries/wages with which to purchase goods and services.

Question 7

Define the ‘financial sector’…

Answer 7

Is concerned with money.
- It is made up of firms and institutions that provide financial services to commercial and retail customers.

This sector comprises a broad range of industries including banks, investment companies, insurance companies, and real estate firms.

Question 8

Define a ‘free trade agreement’…

Answer 8

An agreement between two or more countries whereby trade between the member countries occurs without (or with minimal) restrictions.

Question 9

Define ‘progressive taxation’…

Answer 9

A system in which those who earn higher incomes pay a higher percentage of their income as tax than those with lower incomes

Question 10

Define ‘economic growth’…

Answer 10

The increase in the quantity of goods and services produced in an economy over a period of time; the increasing ability of society to satisfy the needs and wants of its people.

Question 11

Define ‘gross domestic product (GDP)’…

Answer 11

The total market value of all final goods and services produced in an economy over a period of time.

Question 12

Explain the meaning of ‘GDP per person’…

Answer 12

• GDP is divided by the size of the population. Also referred to as GDP per capita
• GDP per capita is an important indicator of economic performance and a useful unit to make cross-country comparisons of average living standards and economic wellbeing.

Question 13

Defina a ‘market’

Answer 13

Where buyers and sellers interact with one another, exchanging money for goods and services.

Question 14

Explain the meaning of ‘disposable income’…

Answer 14

How much spending money people have leftover after paying taxes and expenses.

Question 15

Define an ‘economic system’…

Answer 15

An economic system describes how society determines:

What to produce
How to produce
For whom to distribute goods and services

Question 16

Define a ‘planned economy’…

Answer 16

An economy where the government decides what is produced and how the finished goods and services are distributed.

Question 17

Define a ‘mixed economy’…

Answer 17

An economy where the government regulates the economy but a market is there to determine how the majority of goods and services are produced.

Question 18

Define ‘market economy’…

Answer 18

All resources go only into making the things that consumers want to buy and that are profitable to produce.

Question 19

Define ‘progressive taxation’…

Answer 19

A system in which those who earn higher incomes pay a higher percentage of their income as tax than those with lower incomes

Question 20

Define ‘subsidy’…

Answer 20

A benefit to producers from the government to reduce the costs of production for local producers allowing local products to be sold at a cheaper price than imported substitutes.

Question 21

Define ‘opportunity cost’…

Answer 21

What you have to forgo if you choose to do A rather than B; the value of the alternative that is foregone whenever a choice is made

Question 22

Define a ‘traditional market’…

Answer 22

A market that is self-sufficient produces enough to survive, it doesn’t don’t aim to make a profit and finally, MONEY is not used

Question 23

The goals of economic systems - Why do they behave the way they do?

Answer 23

To provide:
1. Economic freedom - allowing individuals/ firms to make their own economic decisions without government interference (e.g. choosing your own job or what to buy)

2. economic efficiency - reducing waste while ensuring that all consumers are able to get what they want (e.g. prioritising employment) 
3. economic equity - evenly distributing the wealth of a nation to ensure fairness in resource allocation (e.g. reducing the income gap in a country)

Question 24

Define a ‘planned socialist economy’…

Answer 24

The government determines ‘what to produce’, ‘how to produce’ and ‘for whom to produce. It is called a planned economy because production takes place in line with the government’s long and short term plans

Question 25

List descriptive factors that define socialism…

Answer 25

1. Significant government ownership
2. Resources owned by the public sector
3. Government allocates resources as it sees fit

Question 26

List descriptive factors that define capitalism…

Answer 26

1. Resources are owned by the private sector
2. Individuals have the right to choose their occupation - whether they work or not
3. Individuals have the right to use their resources as they choose - Entreperneurs

Question 27

Define ‘globalisation’…

Answer 27

The breaking down of trade and communication barriers between different economies, cultures and people across the globe

Question 28

Define ‘consumer sovereignty’…

Answer 28

The ability of the consumer in a competitive market economy to direct or allocate resources. The opposite approach is to have government sovereignty

Question 29

Explain market VS planning…

Answer 29

Market refers to consumer sovereignty or control by buyers while planning refers to government control