Topic 1 - Introduction to Economics
What is the economic problem?
How to allocated our scarce resources, whilst society has unlimited wants
What are internal economies of scale?
The cost saving advantages that result froma firm expanding its scale of operations:
Can buy in bulk, labour specialisation, investment into capital, resources into R&D, market by-products
What is the law of demand?
Increased price leads to lower demand
Where does the supply of labour come from?
Workers, unemployed
What is a public good? What are the two features of a publi good?
A public good is a good which is difficult to prevent anyone from using, regardless of whether they pay for its use. E.g. street lighting, national defence and public parks.
They are non-excludable and therefore attract free-riders who will enjoy them without paying for them.
They are non-rival - one person’s enjoyment of it does not diminish the potential for others to also enjoy the good
Describe the business cycle using an Australian example.
Expansion, peak, contraction, trough
E.g. COVID to post COVID.
What is the technical optimum?
Where average costs are at their lowest
What is the law of supply?
Increased price leads to increased supply
What is frictional unemployment?
People moving between jobs?
Why does the government intervene and explain the two ways governments intervene (policies)
Without government intevrention market failure can occur:
- Externalities
- Instability
- Abuse of Market Power
Government intervention - Macro-economic policies and Micro-economic policies.
What are the factors of production and their returns?
Capital -- interest
Enterprise -- profit
Land -- rent
Labour -- wages
What is utility?
What is the law of diminishing marginal utility?
The satisfaction or benefit a consumer receives from consuming a good or service.
As more units of a good are consumed, the additional satisfaction gained from each extra unit generally decreases.
What does it mean if demand is price elastic?
Price elasticity of demand is a concept in economics that describes the relationship between a product's change in quantity demanded and a price increase, expressed as a ratio.
If elasticity is greater than 1, demand is elastic; if less than 1, it is inelastic.
Goods with many substitutes tend to be more elastic.
Price changes for these goods lead to substantial changes in demand.
Total revenue moves in the opposite direction to price. When price goes up, total revenue goes down because people stop buying the item. They buy much less or find other choices.
Why is the demand for labour a derived demand?
Depends on how much of a g/s is demanded
What are three features of a good tax system? (150)
What are
Feature of good tax
Equity of the tax system – refers to how the burden is distributed amongst taxpayers according to the ability of the taxpayers to pay. Horizontal equity refers to equal tax burden for taxpayers earning the same income. Vertical equity refers to higher tax burdens applying to taxpayers on higher incomes as they have a greater ability to pay.
Efficiency – refers to the degree to which the tax leaves the allocation ofresources unchanged – should minimise the distortion of decision makingleaving the free market to allocate resources unhindered as far aspossible.
Simplicity – the public should be able to understand the tax, the taxes should be easy to collect and the system should have minimal scope for avoidance (legal minimisation of tax liability) and evasion (unlawful non payment)
Types of Tax
Progressive tax is one in which higher income earners pay a greater proportion of their income as tax than lower income earners. (ART rises as income rises) – e.g. income tax – see example on the next slide
Proportional tax is one where all income earners pay the same proportion of their income as tax (ART is constant as income rises) e.g. flat rate of tax such as company tax – 30% for all companies
Regressive tax is one where higher income earners pay a smaller proportion of their income as tax compared with lower income earners who pay a greater proportion of their income (ART decreases as income increases) e.g.GST at 10% (also known as a value added tax – see how this works on the slide after the next)
How is opportunity cost visualised? Draw it.
PPF
What should MPC and MPS add up to equal?
1
Movements along the supply and demand curve are caused by what?
Price
What does the FWC do? Name 2 functions
Oversee the setting of the minimum wage, enterprise agreements, dispute resolution, termination of employment
The government introduces a tax on cigarettes. Give two possible objectives.
Raise government revenue and reduce consumption because smoking creates social costs/negative externalities.
What is the difference between a leakage and an injection? What is the formula?
Injection is money coming IN to the economy, Leakages is money coming OUT of the economy.
I + G + X = S + T + M
What is the consumption function? And what are the components?
C = C0 + cY
C0 is autonomous consumption
c is MPC
Y is income
What is the concept of consumer sovereignty?
Consumers choices decide what to produce and how much to produce
What is an enterprise agreement?
Made between employers and a group of employees for a specific type of business
Analyse how fiscal and monetary policy can be used to achieve economic objectives.
Inflation --> Interest rates change to either increase or reduce spending. Taxation can induce consumption which leads to inflation chnages.
Equity --> tax the wealthy and redistribute.
Need to support with evidence...