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Resources
o Resources refer to the factors of production in economics
o Resources are bought and sold in factor markets a marketplace
facilitating the purchase and sale of services of factors of production.
o Types of resources (4 types):
Labour human effort (intellectual or physical) used to produce
goods and services paid through wages/salaries/commission
labour force = anyone available for work (employed + unemployed)
divided by the population.
Land all natural resources such as vegetation, minerals, animals,
climate paid through rent
Capital goods we use to produce other goods and services (e.g.
buildings, machinery) paid through interest
Enterprise/Entrepreneurship the resource organizing the other 3
resources paid through profit (e.g. Kerry Packer).
Scarcity
o
o
o
o
A decline in resources
New/more resources
Unemployment
1.4. Future
implications
of current
choices by
individuals,
businesses
and
governments
Businesses
o Pricing: costs must be covered but a profit must be gained most
businesses use cost plus pricing price= costs + mark up (profit
margin)
o Production: Most efficient combination of capital and labour to use
minimize resource cost + maximize revenue= profit maximization
o Resource use: protect employees Fair Work Act 2009 Ten
National Employment Standards (NES) National Minimum Wage
o Industrial relations: Wage negotiation have become more
decentralized and deregulated under the principle of enterprise
bargaining negotiation of wages now encouraged under the Fair
Work Act 2009 rewards for increasing productivity
Governments
Factors of production
o Note: Overlap with 1.1.
o Factors of production any resources that can be used in the
production of goods and services.
o Input (factors of production) production process output
(goods/services)
o Four types:
Natural resources: land (e.g. water, soil) consumers own land for
income (rent)
Labour resources: Human effort physical and mental
Capital resources: Produced means of production social
overhead capital (i.e. infrastructure) another form of capital
including bridges, schools, railways, etc.
Resource
Reward
Natural resources
Rent
Labour
Wages
Capital
Interest
Enterprise
Profit
Enterprise resources: involves organizing the other factors of
production
Australia
o There has been a clear trend in Australia towards even greater
market capitalism: tariff cuts, extension of free trade, privatisation of
many GBEs
o Government Business Enterprises (GBEs), also known as Public
Trading Enterprises (PTEs) businesses owned and managed by a
government.
2.5. Provision of employment and quality of life through the
business cycle
Business Cycle
o The business cycle (or economic cycle) displays the fluctuations of
economic growth over a period of time.
o Impacts of the business cycle:
Equilibrium/Disequilibrium + Injections/Leakages
o Equilibrium occurs when the sum of the 3 leakages equals the
sum of the three injections i.e. S + T + M = I + G + X
o Disequilibrium occurs if the sum of the total leakages doesnt
equal the sum of the total injections, causing the levels of income,
output, expenditure and employment to fall/rise.
o S + T + M (leakages) > I + G + X (injections) = contraction + higher
unemployment
o S + T + M (leakages) < I + G + X (injections) = expansion + lower
unemployment
o The economy will ALWAYS move itself towards equilibrium at a time
in the future.
Circular flow of income
1.2.
Factors influencing individual consumer choice
Income
Price
Price of substitutes
Price of complements
Preferences/tastes
Advertising
Factors influencing individual consumer choice
o Income: higher income earners buy more high quality
o Price: must decide whether they are happy to pay the price
some consumers accept any price for necessities (e.g. food).
o Price of substitute/complementary goods: e.g. if butter is expensive,
some consumers might purchase margarine (substitute). E.g. if cars
price increase, petrol should decrease (complement).
o Consumer tastes and preferences: lead to the highest level of
utility as tastes change over time, so does demand
o Advertising: persuades/informs/reminds consumers of products.
Reward
Rent
Wages
Interest
Profit
2.1.
Definition of a
firm and an
industry
A
firms
production
decisions
What to
produce
What
quantities to
produce
How to produce
Firms
o A business/firm an organization involved in using entrepreneurial
skills to combine factors of production to produce a good or service
for sale.
o An industry the collection of firms involved in making a similar
range of items that usually compete with each other, such as the
financial services industry or the car industry.
o A firms production decisions:
What to produce: influencing factors
Skills and experience of operator (i.e. industry knowledge)
Where is strong consumer demand?
Businesses opportunities (e.g. high consumer demand with few
competitors)
Amount of capital required to start the business
Specialisation of labour: break down production process into subprocesses employees specialize in a particular sub-process
become faster and faster (experts) avoid wasting time from one
process to another.
Specialisation of natural resources: when a large number of
businesses produce similar goods/services congregate in the same
area to reduce production costs by sharing common infrastructure
Specialisation of capital: large scale production when
businesses grow so large they can use highly specialized capital
equipment in their production
External
diseconomies of
scale
o The
disadvantages
faced by a
Production Methods
Prices
Employment
Outputs & Profits
Types of Products
Globalisation
Environmental Sustainability
Topic 3: Markets
Sub-topic 2 Demand and Supply
Demand
o Demand the quantity of a particular good that consumers
are willing and able to purchase at various price levels at a
given point in time want it plan to buy it can afford it.
o Law of demand states all else being equal, as the price of a
product decreases, quantity demanded increases; likewise, as
the price of a product increases, quantity demanded
decreases.
o Individual demand the demand of each individual consumer
for a particular good or service.
o Market demand demand by all consumers for a particular
good or service.
o Perfect elasticity:
simply go to
companies
Shifts of the
Movement to equilibrium
Effects of changes in supply and/or demand on
equilibrium market price and quantity through the use
of diagrams
Effects of changing levels of competition and market
power on price and output
Market Equilibrium
o Market equilibrium the situation where, at a certain price
level, the quantity supplied and the quantity demanded of a
particular good are equal
merit
goods,
public
goods,
externalities
Market Failure
o When markets do not produce the desired outcomes, it is
called market failure occurs when in any given market, the
quantity of a product demanded by consumers does not
equate to the quantity supplied by suppliers
o Market failure when price mechanism accounts for the
private costs for production (the cost the firm pays to
purchase capital equipment, hire labour and buy materials),
but not the social costs of production these social costs are
known as negative externalities unintended consequences
of the production process occur when production impose
external costs on third parties occur outside of the market
(spill-over effects)
o Private costs are faced by producer or consumer directly in a
transaction
o Social costs indirect E.g. impact of road fumes on lungs
or e.g. 2. External costs of cleaning up litter and the dropping
of chewing gum
o Externalities a major cause of market failure occur in
nearly every market can be positive and negative
Ceiling and floor prices
o Government have price intervention through:
Market Structures
o So far we have assumed if a firm does have market power it
can increase equilibrium price and lower equilibrium quantity
this assumption is INCORRECT governments intervene to
limit market power (more market power, more intervention
required).
o Market structure the number and relative size of the firms
within an industry, the nature of the product being sold and
the ease with which new firms can enter into that industry
o In economics, there are FOUR theoretical market structures:
Pure competition: a model of perfect competition price
taker
Monopolistic competition: many small firms in the industry
imperfect competition (not pure competition or monopoly)
SOME control on price but not market power of a
monopolist