| Question | Answer |
| 1. We say peoples' wants are unlimited because... | Wants exceed the resources available to produce the necessary goods and services to satisfy these wants (wants reoccur, materialism, growing populations, fashions & tastes change).
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2. What are the 3 main types of resources? | Natural (gifts of nature); Labour (mental talents & physical power of different occupations); Capital resources (many-made equipment and materials used by firms to make other goods and services)
| 3. What is meant by the basic economic problem of 'relative scarcity'? | That people's wants are unlimited relative to the resources available to satisfy these wants forcing people to make choices as to which wants will be satisfied first.
| 4. Why does society need to choose how it allocates or uses resources? | We can't have all the goods and services we want due to the basic economic problem of scarcity so we are forced to make a choice.
| 5. What is the name of the diagram used to illustrate the idea of choice in the allocation of scarce resources between competing wants or uses? | Production possibility diagram.
| 6. All economic decisions involve an opportunity costs. Define 'opportunity cost'. | Opportunity cost is the value of production foregone when a decision is made to use resources in the next most productive way.
| 7. Define an economy or economic system. | An economy is an institution or organisation that exists in a country designed to organise the production and distribution of the country's goods and services.
| 8. Outline the 3 key economic questions or choices that are made by all economic systems or economies. | There are 3 key economic decisions that are made: What & how goods and services to produce; How to produce goods and services; For whom to produce the goods and services or distribution of the goods and services.
| 9. Name the 4 different types of economic systems found in the world. | Market capitalist; Market socialist; Planned socialist; Planned capitalist.
| 10. What are the 2 key features found in all economic systems in the world? | A system of ownership of the means of productions/ businesses or resources; A system for making key economic decisions.
| 11. Name Australia's type of economic system. | Market capitalist system.
| 12. List and outline the key values or beliefs that are behind Australia's economic system. | Free enterprise; private enterprise; Profit maximisation; Consumer sovereignty; Competition; the goal of strong & sustainable economic growth (GDP growth 3-3.5%pa); the goal of an equitable distribution of income (everyone has access to basic goods and services); the goal of full employment (unemployment is low around 4.5/5.0% of the labour force); the goal of external stability (we pay our way in international financial transactions); the goal of low inflation (prices rising slowly around 2/3% pa).
| 13. There is some government ownership in Australia's economy. However, in recent years the level has decreased and there have been various changes. List these changes. | Privatisation; User pay principle; Corporatisation.
| 14. Define a market. | An institution where buyers and sellers of a particular good or service negotiate a price.
| 15. What is meant by the term, 'market structure'? | Market structure relates to the type or level of competition that exists in various markets- for example, purely competitive; pure monopoly; oligopoly, monopolistic competition.
| 16. What are the main preconditions for a purely competitive market structure? | Many sellers; Strong competition between rival sellers; Firms are price takers; There is ease of entry and exit; No product differentiation exists; No government regulations, Consumer sovereignty exists; Firms try to maximise their profits; there is perfect knowledge about market conditions amongst buyers.
| 17. What are the main advantages of pure competition? | Lower prices and inflation; Higher efficiency in production and hence higher GDP; Better quality products; Better service for customers.
| 18. What is the main policy used by the Australian government to promote stronger competition in markets? | Australian Competition & Consumer Act 2010 enforced by the ACCC.
| 19. Define demand. | The amount of a good or service that consumers are prepared to purchase at various prices.
| 20. What is the law of demand? | That the quantity of a good or service demanded varies inversely with its price level.
| 21. What is the law of supply? | That the quantity of a good or service supplied varies directly with its price level.
| 22. List the main microeconomic conditions that can either increase or decrease the amount of a good or service that consumers are prepared to demand or purchase at a given price. | Changes in eg, Disposable income, Fashions and tastes; Advertising success; price of a substitute product; Price of a complimentary product; weather/ seasonal conditions; a tax on a product; a subsidy to consumers of a product.
| 23. List the main microeconomic conditions that can either increase or decrease the amount of a good or service that producers are prepared to supply or produce at a given price. | Changes in eg, production costs (eg, wage costs, power costs, transport costs); Changes in profits of the firms; Weather conditions affecting growers; Limited resources available.
| 24. Define 'equilibrium price' in a market. | Where the quantity D = quantity S. There is no glut nor shortage.
| 25. Define 'relative prices'. | The price level of one particular good against the price level of another good or service.
| 26. How does the operation of the price system in Australia's act to make many decisions and help to allocate resources between the production of competing types of uses? | Because of scarcity, not all goods and services can be produced nor all wants satisfied. The price system involving the operation of D & S of each good or service helps to guide resources into to most needed areas of production. For example, when the relative price of a good goes up perhaps due to a rise in D or fall in S, this usually makes that good more profitable and hence attracts more natural, labour and capital resources into this use out of other less profitable areas of production. The reverse applies when the relative price of a good falls, repelling resources from that area of production.
| 27. Define what is meant by market failure. | When the operation of the market system involving D & S makes poor decisions that lower the general wellbeing of society and its SOL.
| 28. How and why does the operation of the market system sometimes misallocate resources? | The market can make poor decisions .... When competition is weak and there are monopolies and oligopolies exercising market power; When buyers lack sufficient knowledge to make good decisions; When socially undesirable g&s are overproduced because they are profitable and buyers are irrational; Where socially desirable g&s are under-produced because they are costly to make and can't be sold cheaply at a low affordable price so all people can access their use.
| 29. Why is the market system unstable? | The market system is unstable and results in severe booms and recessions due to changes in the level of national spending.
| 30 Why does the market system result in income inequality? | The rich get richer and the poor poorer if the government does not redistribute incomes more equitably using progressive income tax, welfare and free services.
| 31. How can the Australian government reduce market failure? | There are several ways- eg, Pass laws to change the behaviour of buyers and sellers; put a tax on undesirable g&s, subsidise socially desirable g&s, redistribute income using various policies; stabilise the economy by changing taxes, government spending and interest rates to help regulate the level of spending in the economy. |
