Unit 1-Area of Study 1-Market Systems Flashcards
Define:
Economics
Economics is the study of how to use limited resources to help make individuals and society better of in order to improve living standards
Define:
Living Standards
Living standards refer to how well individuals live their daily lives in regard to material and non-material wellbeing
What are:
The two types of economics?
- macroeconomics
- microeconomics
Define:
Microeconomics
Microeconomics regards decision making by individual firms, households and industries
Define:
Macroeconomics
Macroeconomics regards the workings of the economy as a whole, including the general influences on the levels of national spending, production and income
Define:
Needs
Goods and services that are required by individuals or society to survive
Define:
Wants
Goods and services that would make life more enjoyable but which are not essential for an individual or society
Why are needs and wants unlimited?
- when one want is satisfied another appears
- more material possessions one has, the more one wants
- growing population
- planned obsolescence
Define:
Resourcs
Resources is the input used in the production of goods and services
What are:
The two factors which limit productive capacity?
- quantity of resources
- quality of resources
What is:
Higher efficiency?
When the same amount of input results in a higher output
What are:
The three types of resources?
- land
- natural resources
- labour
- capital
- machinery, equipment, technology, money
Define:
Efficiency
Efficiency relates to the level of output per unit of input
What is:
GDP?
- Gross Domestic Product
- total value of goods and services produced
- size of a country’s economy
Why are capital resources considered to be so important compared to and and labour?
- without any capital, land and labour cannot be efficient in production
- in poor countries such as Bolivia, there is not the infrastructure to capitalise upon rich natural resources
- capital means the ability to produce goods and services is vastly increased
What is:
Relative Scarcity?
Refers to the fact that while all needs and wants are unlimited and there are only limited resources, some resources are scarcer than others, and therefore have a higher value, measured by price
What affects relative scarcity?
- supply
- demand
What are examples of ways physical wellbeing can be measured?
- infant mortality rate
- life expectancy
- obesity levels
- malnutrition levels
- quality of education system
Why do wealthy nations enjoy higher levels of wellbeing?
Rich nations can buy and invest to improve physical wellbeing
What is:
Price?
- the money cost of a good or service
- measure of relative scarcity
What is the economic problem of relative scarcity?
- limited resources cannot possibly fulfil the unlimited needs and wants of the population
- supply is not equal to the demand
What makes items scarce?
Uneven supply and demand
What is:
Opportunity Cost?
- the opportunity cost of any action is the value of the net best alternative forgone
- the sacrifice
- cross country comes at opportunity cost of 6ths footy
- the sacrifice
Define:
Productive Capacity
- economy’s limit of goods and services output that can be produced when:
- all resources are utilised
- all resources are used efficiently
When moving from one point to another, what does the production possibility curve show?
Opportunity cost involved
What does a point inside the production possibility curve mean?
- unemployed resources
- inefficient use of resources
What does a point outside the production possibility curve mean?
- cannot be produced
- excess demand
- inflation or
- reliance on imports
Where is the most efficient allocation of resources?
Where the combined value of both goods produced is at its max
How can productive capacity increase?
- quantity of resources increases
- quality of resources increases
- efficiency increases
Define:
Economic Systems
Systems designed to wisely use scarce resources to improve living standards
What are:
Two features of economic systems?
- system of decision making
- system of ownership
What are the three questions that the system of decision making attempts to answer?
- what and how much to produce?
- opportunity cost
- how to produce?
- for whom to produce?
- how is income from production shared
What are the two extremes of:
System of decision making?
- price or market system
- consumer sovereignty
- government system
- government sovereignty
What are the two extremes of:
System of ownership?
- capitalist system
- privately owned enterprises
- socialist system
- state owned enterprises
How can economy move towards:
Price system?
- free trade
- removal of tariffs
- tax reductions
How can economy move towards:
Capitalism?
- privatising major state assets
- Metro
What are:
The four economic systems?
- market capitalism
- planned socialism
- market socialism
- planned capitalism
What is:
Market Capitalism?
- private ownership
- price system
- eg: Aus, USA
What is:
Planned Socialism?
- government ownership
- government system
- eg: Cuba, North Korea
What is:
Market Socialism?
- government ownership
- price system
- eg: China
What is:
Planned Capitalism?
- private ownership
- government system
- eg: Nazi
Why is market capitalism said to be the most efficient system?
Profit incentive means private businesses will be producing the best goods and services they can, efficiently as they can because they are aiming for the largest profit they can. Governments have no choice but to do it, and are not driven for profit
What is:
The Convergence Theory?
- theory stating differences between economies will disappear over time
- systems of decision making and ownership become the same
- market capitalism considered most successful at the moment
- systems of decision making and ownership become the same
Australia’s economic system reflects which 2 values?
- individual right and economic freedom
- government desired economic goals
What is:
Consumer Sovereignty?
Based purely on price, individuals choose what to consume and therefore dictate to producers what to produce
What are:
The 6 government desired economic goals?
- strong and sustainable economic growth
- full employment
- price stability
- external stability
- equitable distribution of income and wealth
- improvement in living standards
What is:
Purchasing Power
Refers to the way consumers can dictate what is produced based on how and who produces it
-Eco friendly
What are:
7 preconditions for pure-competitive market?
- strong competition
- ease of entry
- no product differentiation
- absence of government controls or restrictions
- good knowledge of market
- firms trying to maximise profits
- consumers behave in economically rational way
What are:
5 effects of high competition?
- high efficiency
- decreased prices = increased purchasing power
- increased quality
- increased output (collusion)
- increased international competitiveness = increased exports
What are:
5 effects of low competition?
- low efficiency
- increased prices = decreased purchasing power
- decreased quality
- decreased output (collusion)
- decreased international competitiveness = decreased exports
What are:
8 illegal anti-competitive tactics?
- price fixing
- price discrimination
- exclusive dealing
- collusive bidding
- price leadership
- predatory pricing
- market zoning
- interlocking directorships
How does the following lower competition:
Price Fixing?
Firms set prices instead of consumers
-Dealers set whatever price they want
How does the following lower competition:
Price Discrimination?
Charging different prices to different consumers
How does the following lower competition:
Exclusive Dealing?
Refusing to supply to one or more firms
-Proposition Joe refusing to sell to Marlo
How does the following lower competition:
Collusive Bidding?
Companies colluding to control the tender process
- working together to avoid bidding and competing to win a contract
- Proposition Joe’s meetings
How does the following lower competition:
Price Leadership?
Dominant firm sets price and others follow
How does the following lower competition:
Predatory Pricing?
Dominant firm cuts price to bankrupt others
-QANTAS
How does the following lower competition:
Market Zoning?
Competing firms arrange to not compete in same market
-Barksdale staying East-side
How does the following lower competition:
Interlocking Directorships?
Directors of boards of competing firms
-Eddy McGuire; Aths Vic and Collingwood
Why is it important for competition to be high?
- high competition = high efficiency
- high competition = higher quality
- high competition = lower price = accessible by more people = increased living standard
Why does quantity demanded contract when price falls?
- buyers cannot afford high price
- if price is too high, alternate items will be found
Why is there a contraction in the level of supply when prices fall?
- less profit to be made on G+S
- harder to make profit
- efficiency is more important
What are:
10 factors affecting demand?
- income tax rates
- household income
- fashion/tastes
- advertising
- population
- interest rate on credit lent out
- anticipated future prices
- price of substitute items
- price of complementary items
- consumer/business confidence
What are:
8 factors affecting supply?
- production cost
- wage cost per unit of output
- business loan interest rate
- tax rates
- costs of inputs
- technology cost and availability
- climate
- subsidies
What are the 5 characteristics of:
Pure Competition?
- many sellers
- quality differentiation
- high competition
- price takers
- ease of entry
What are the 2 characteristics of:
Monopolistic Competition?
- quite a few sellers
- brand name differentiation
What are the 5 characteristics of:
Pure Monopoly?
- one seller
- no differentiation
- low competition
- price makers
- no ease of entry
What are the 2 characteristics of:
Oligopolistic Competition?
- several sellers
- advertising differentiation
What is an example of firms within the 4 types of market structures?
- pure competition; Vic Market
- monopolistic competition; Ralph Lauren
- oligopoly; Coles
- pure monopoly; Melbourne Wate
What does a market failure result in?
- resources under-utilised
- living standards lowered
When does a market failure occur?
When the economic system fails to answer the key economic questions
How does the government intervene in the event of a market failure?
- government legislation
- discouraging socially undesirable G+S
- encouraging socially desirable G+S
- promoting strong competition
Where does the government intervention modify the market?
- regulates level of economic activity
- reallocates resources
- redistributes income
What are:
4 ways market activity can be regulated?
- stimulus package
- incentives
- tax rates
- government spending
What are:
5 ways resources can be reallocated?
- microeconomic policy
- tariff removal
- government production of services
- taxes
- subsidies
- legislation
What are:
5 ways income can be redistributed?
- microeconomic policy
- tariff removal
- government production of services
- taxes
- subsidies
- legislation
