Basic Economics Concepts
What is the basic economic problem that all societies face?
Scarcity - Limited resources versus unlimited wants.
What is globalisation?
The increasing interconnection and interdependence of economies, cultures, and populations worldwide.
What is comparative advantage?
When a country produces a good at a lower opportunity cost than another country.
What does GDP measure?
The total value of goods and services produced within a country in a year.
When Australians buy imported cars from Japan, is this a leakage or an injection, and why?
Leakage—because money flows out of the Australian economy to pay for imports.
What are the three fundamental economic questions?
What to produce? How to produce? For whom to produce?
What is a key advantage of globalisation?
Increased competition, leading to lower prices and more choices for consumers.
How does opportunity cost determine which goods a country should specialise in?
Countries should specialise in producing goods with the lowest opportunity cost, so they can trade for goods that are more costly for them to produce.
What happens to GDP if consumer spending increases?
GDP increases, as more demand leads to more production and income.
How does Australia benefit from trade with China?
Exports of natural resources (e.g. coal, iron ore) and cheaper manufactured imports.
What is opportunity cost?
The next best alternative forgone when making a decision.
What is a key disadvantage of globalisation?
Job losses due to outsourcing to lower-cost countries.
Why do countries trade instead of trying to produce everything themselves?
Trade allows countries to specialise in what they do best, increasing overall efficiency and economic growth.
What are the five sectors in the Circular Flow Model?
Households, businesses, financial sector, government, international trade.
What is a positive impact of globalisation?
More jobs, more range and cheaper goods and services, economic growth.
Name the four factors of production.
Land, labour, capital, entrepreneurship.
How does international trade benefit consumers?
Lower prices, more product variety, and access to resources not available domestically.
If a country decides to produce more consumer goods instead of investing in new technology, what is the opportunity cost?
The lost benefits of technological advancements, which could have led to higher productivity and future growth.
What is the role of the government in the circular flow of income?
The government collects taxes, provides public services, and provides Government Spending.
What is a negative impact of globalisation?
Poor working conditions through exploitation, low wages, environmental damage.
What is the difference between microeconomics and macroeconomics?
Microeconomics studies individual businesses/markets, while macroeconomics focuses on the economy as a whole
How does specialisation and trade benefit both trading partners?
By focusing on goods they produce efficiently, both countries can trade for goods they produce less efficiently, leading to higher total output and lower costs.
Why does opportunity cost vary between countries, even for the same product?
Different countries have different resources, skills, and production methods, meaning they must sacrifice different amounts of other goods to produce the same product.
If leakages exceed injections, what happens to the economy?
The economy contracts, as less money is circulating, leading to lower production, job losses, and reduced growth.
A mining company in Australia invests in new machinery and technology. Is this a leakage or an injection, and why?
Injection—because the company is spending money on investment, which increases production and employment.