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Economics 1,2 > Unit 2 AOS 2 > Flashcards

Unit 2 AOS 2 Flashcards

1
Q

What is factor income

A

-> arise due 2 result of productive activity, paid 2 factors of production, included in national income estimates
E.g- rent, wages, interest profits

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2
Q

What are transfer income

A

-> do x arise due to any productive activity, x paid 2 factors of production, excluded from national income estimates
E.g- scholarships 2 students, old age pensions, lotteries

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3
Q

What is the p.o.d b/n factor income + transfer receipts

A

Whether or not the income received is for rendering a productive service

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4
Q

What are the different types of incomes

A

Private / market income
Gross income
Disposable income
Social wage income
Final income
Discretionary income
Equivalised household income

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5
Q

What is private income

A

= received in market primarily as a result of individual making a contribution 2 production process

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6
Q

What is gross income

A

= private income + direct taxes levied by gov.t

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7
Q

What is disposable income

A

= gross income less direct taxes levied by gov.t

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8
Q

What is social wage income

A

= disposable income + indirect gov.t benefits provided in the form of g/s

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9
Q

What is final income

A

= social wage income less production / indirect taxes

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10
Q

What is discretionary income

A

= income available 4 consumption on g/s following the payment of unavoidable expenses

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11
Q

What is equivalised household income

A

= disposable income of a household adjusted 2 take into an account the size x composition of the household

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12
Q

What is wealth

A

= consists of assets or things of value owned by private individuals

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13
Q

What is the relationship between income and wealth

A

= as income inc -> inc money left over after essential consumption -> saved -> inc wealth which can inc if invested

pod = what each measures

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14
Q

What is nominal income

A

= number of $ of income received by an individual measured over a period of time + does x take into account its purchasing power

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15
Q

What is real income

A

-> = 2 a person’s nominal lvl of income after accounting 4 the impact of changes in general prices (inflation) = guide 2 it’s purchasing power

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16
Q

What is equality

A

= everyone has equal access 2 g/s + income

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17
Q

What is equity

A

= more related 2 fairness h/r equality is inc related 2 eveness

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18
Q

What is absolute poverty

A

= refers 2 ppl living in situation where they have insufficient income 2 purchase the basic g/s such as food, shelter + clothing

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19
Q

What is relative poverty

A

= exists when households have low incomes compared with what us needed 2 maintain an agreed reasonable L.S

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20
Q

What does the Henderson Poverty Line imply

A

= fixed proportion of av. household income + will inc over time as the nations income + wealth inc.

-> when falls below, means earning income that is insufficient 2 provide dignified s.o.l

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21
Q

What does dignified s.o.l mean

A

= households being able 2 afford the g/s that allow them 2 live in our affluent + modern society with some dignity + self respect

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22
Q

What is the effect of poverty on mLS

A
  • Impact health + edu 4 members of households
  • less likely 2 have financial means 2 support healthy diet, visit medical professionals / pay 4 needed medicines
  • less access 2 g/s
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23
Q

What is the affect of poverty on NMLS

A
  • -> less physical + mental health
  • poor economic outcomes impact ability 2 earn incomes + have inc mLS in future
  • inc in social unrest / antisocial behaviour
  • development of class system in society with inc attitude of “us vs them”
24
Q

Which indicators are used to measure income equality

A
  • Gross household income
  • Household disposable income
  • Equivalised household income
25
Q

What is the Lorenz Curve

A

= diagrammatical representation of the degree of equality in the distribution of income or wealth

26
Q

What is the gini coefficient

A

= number b/n 0 and 1 which provides indicator of degree of inequality in income distribution

27
Q

What is the optimal level of inequality

A

= where total benefits of inequality just outweigh total costs + movement away from this lvl will see deterioration of national L.S
-> optimum = 0.3-0.4 (0.3836)

28
Q

What are causes of income inequality

A

1) Quality of human capital
2) Unemployment
3) Luck
4) Inheritance
5) Sovereign indebtedness

29
Q

What is the quality of human capital

A

= difference in skills / abilities that are held by member of the workforce
-> highest wages are received by those who supply labour where supply is less than demand
-> Supply of labour is high relative 2 demand 4 labour t/f less remuneration

30
Q

What is unemployment

A

= number of ppl actively seeking a job h/r x paid employment

31
Q

What is luck

A

= some wealthy households gained fortune through luck unrelated 2 good investment choices, inheritance or any other factors
E.g Taxlotto

32
Q

What is inheritance

A

= most of wealthiest households in Aus have inherited at least a portion of their wealth which can be invested in various assets 2 generate income

33
Q

What is sovereign indebtedness

A

= build of debt incurred by gov.t when gov.t spending > gov.t revenue

34
Q

What does equity in distribution of income require

A
  • Aus’ have sufficient income 2 purchase those g/s that enables them 2 have a dignified s.o.l
  • X person / household in Aus are experiencing absolute poverty
  • Huge inequalities in incomes are avoided
35
Q

Benefits of achieving equity - social

A
  • less helplessness and despair
  • less M.H problems
  • less social unrest
  • reduction of class system
  • less conspicuous consumption t/f less divisive
  • less inequality of opportunity
  • less wealth inequality
36
Q

Benefits of achieving equity - economic

A
  • cost 2 gov.t dec b/c less provision of income support
  • S.T x dec 2 economic growth
  • prevent less AD as wealth of middle class drive AD
37
Q

Costs of achieving equity - social

A
  • less ppl motivated 2 be more creative / entrepreneurial in light of lower lvl of inequality
  • less individuals pursuing goal of inc income + wealth
38
Q

Costs of achieving equity - economic

A
  • -> quality of nation human capital less than what it would be if inequality occurred
  • Quality of nations capital stock can be less than would be if inequality occurred
  • -> less labour + capital productivity
  • less productivity -> higher prices + inflation
  • more inflation -> less AD
  • impaired economic growth
39
Q

What are benefits of productive efficiency

A

1) improved international competitiveness + better balance of payment positions
2) inc in AD + eco growth
3) inc employment + dec rates of unemployment
4) inc national income lvls + boost 2 M.L.S
5) less rapid depletion of neutral resources 2 inc efficiency + less waste in production

40
Q

What is a cost of productive efficiency

A

= some policies 2 produce productive efficiency can -> structural unemployment
E.g replacing labour with machines

41
Q

Benefits of Allocative Efficiency

A
  • implied that “right” g/s being produced, consumed + society satisfaction is maximised + there is x mis allocation of resources
  • wellbeing of nation maximised as g/s produced are inc valuable + beneficial 4 pop of country
42
Q

What is productive efficiency

A

= max output from given lvl of input

43
Q

What is allocative efficiency

A

= only combination of allocated resources + production that provide max L.S of a nation

44
Q

What is the p.o.d b/n allocative and technical efficiency

A

= what each maximises

45
Q

What are progressive taxes

A

= those where marginal rates of tax is higher 4 upper income earners and less 4 lower income earners

46
Q

What are regressive taxes

A

= applied uniformly, taking lrg % of income from lower earners than from higher earners

47
Q

What are government measures to redistribute income more evenly

A
  • Progressive taxes
  • Cash welfare benefits
  • Provision of free or subsidised gov.t services i.e health + edu
  • Setting min wage in labour market @ lvl above market equilibrium

-> promote equity rather than efficiency

48
Q

What are issues of government measures to redistribute income evenly

A

-> while improving equity, it reduces…
- incentives 4 individuals 2 work harder + longer hrs
- saying that it is needed 2 finance investment + grow productive capacity
- motivation 2 improve skills, training + worker productivity
- self reliance + encourage welfare dependency that = economic cost on those who are inc productive

49
Q

What are indirect taxes

A

= regressive tax designed 2 achieve inc efficient allocation of resources by introducing price signals that ultimately deter the production + consumption of ‘demerit goods’ such as alcohol and tobacco

50
Q

What are excise taxes

A

= regressive tax levied on demerit goods 2 help re-allocate production of less harmful products

51
Q

What is GST

A

= 10% tax on most g/s -> more certainty + transparency which improved efficiency of tax system h/r x improve equity b/c regressive

52
Q

How can promoting equity improve efficiency

A

1) government spending on education + training programs
2) government spending on health incentives
3) government measures 2 improve social inclusiveness

53
Q

What is a market economy

A

= price / market usually operates x only 2 allocate resources efficiently h/r also help distribute income b/n individuals equitably

54
Q

What are the 3 basic economic questions

A
  • What and how much to produce
  • How to produce
  • For whom to produce
55
Q

How are the 3 basic economic questions answered in income distribution

A

-> normally distribute higher incomes 2 most productive / efficient members of lab force + lower incomes 2 less valued / productive households
-> create signals 2 owners of resources 2 help them use their talents in occupations that are financially most rewarding

56
Q

What are the different types of market failures

A

1) weak competition
2) Asymmetric information
3) Negative externalities
4) Income inequality

57
Q

How does the market cause inequality and inequity

A

-> labour market

Economics 1,2 (7 decks)

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