AOS 1
Resources are limited while human wants are unlimited. Economists call this problem…
Relative Scarcity
What is opportunity cost?
The next best alternative given up
What is the goal of business in the view of traditional economics?
Maximising profits
When quantity demanded falls because price rises, this economic principle is called…
The law of demand
Identify one type of "soft paternalism"
In Australia, households, businesses and government exchange resources, income and spending in this model.
A university student chooses to study for an economics SAC instead of going to a concert with friends. The concert ticket was already paid for. The opportunity cost is:
The enjoyment from attending the concert
A new farming technology allows wheat farmers to produce more wheat at lower cost. What happens to supply?
Supply shifts to the right/ supply increases
People continue scrolling social media late at night even though they know they should sleep earlier. This behavioural insight is:
bounded willpower
The price of coffee increases and consumers purchase less coffee. Economists describe this as:
demand contracts/ downward movement of demand
An economy is producing at a point inside its Production Possibility Curve.
Economists would conclude that the economy is experiencing…
Under-utilisation / inefficient use of resources/ productive inefficiency
A country experiences strong GDP growth, but people report higher stress levels and poorer work-life balance.
Which type of living standard may have decreased?
non-material living standards
"Consumers always make decisions based on perfect information and logical thinking."
Which approach to economics does this statement represent?
Traditional Economics
A student says:
"Interest rates increased, therefore demand shifted left."
Explain the reasoning
When interest rates rise, consumers are more motivated to save rather than spend. And the costs of borrowing increase, so people are less willing to borrow to spend. Therefore, demand for goods and services will decrease.
After Netflix increases its subscription price, many consumers switch to Disney+.
What determinant of demand caused the change?
price of substitutes
A country allows businesses to make most production decisions, but the government still provides public healthcare and welfare payments.
This country most likely operates under which economic system?
mixed economy
Consumer confidence rises after positive economic news. Predict what happens to demand and equilibrium.
Price increases and quantity increases
The government increases taxes on cigarettes. Some smokers continue buying cigarettes despite higher prices.
This suggests consumers may respond differently because…
Individuals respond differently to disincentives / disincentives do not affect everyone equally
Effectiveness of disincentives are limited
A behavioural economist notices that consumers continue buying expensive branded products even when cheaper identical alternatives exist.
Which traditional assumption of consumer behaviour is being challenged?
Answer: Rational decision-making / informed decision-making / utility maximisation
A business owns several cereal brands that appear different but are produced by the same company.
This profit strategy is known as:
A country shifts resources from producing consumer goods toward building renewable energy infrastructure. In the short run, fewer consumer goods are available.
This decision BEST demonstrates:
trade-offs and opportunity costs
During a heatwave, demand for air conditioners suddenly increases.
Explain what the market mechanism would do over time.
Higher demand creates a shortage → upward pressure on prices → signals to producers to allocate more resources to air conditioner production (motivated to maximise profits) -Supply expands
The government increases subsidies for childcare so more parents can return to work.
Identify the incentive and predict one likely effect.
Answer: Subsidy acts as an incentive → greater workforce participation / more labour supplied
A student says:
"If consumers are rational, governments do not need behavioural policies."
Explain why a behavioural economist may disagree.
Answer: Behavioural economists argue consumers may experience bounded rationality, bounded willpower or bounded self-interest, meaning decisions are not always fully rational; therefore governments may use nudges or behavioural strategies.
A government notices rising obesity rates. Instead of banning unhealthy food, it introduces a sugar tax, requires calorie labels on menus, and places healthier food options at eye level in supermarkets.
Using concepts from Unit 1, identify TWO government strategies and explain why these policies may be needed even if traditional economics assumes consumers act rationally.