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ECONOMICS & BUSINESS (KEY CONCEPTS (ALLOCATION & MARKETS (There…
ECONOMICS & BUSINESS
KEY CONCEPTS
SPECIALISATION & TRADE
Many countries around the world are unable to produce the goods and services needed to support the wants and needs of their populations.
Trade refers to when a country is unable to produce a good or service so they rely on trade, or the ability to import or export goods or resources to or from another country.
Specialisation refers to the way an individual, business, or entire country can focus on the production of a particular good or service in order to develop a more efficient and competitive production process.
INDEPENDENCE
Interdependence refers to the way we rely on others to satisfy our wants and needs.If you are not able to produce something for yourself, you are considered dependent. We rely on others to help fill the gaps in our needs and wants that we cannot fill ourselves.
Participants in our economy, including producers, consumers, businesses and the government, depend on each other to produce, specialise and consume goods and services.
As consumers, we must pay for goods and services to meet our needs. In order to afford these things, we rely on earning an income, such as by working for businesses. Businesses or producers rely on being able to sell their goods and services to consumers so that they can continue producing.
THE BUSINESS SECTOR: The business sector refers to the producers that are responsible for making and selling goods and services. Businesses aim to make a profit for their owners by selling items to consumers for a price that is greater than the overall cost of production. Businesses need a variety of resources to produce goods and services, including labour provided by workers.
A BUSINESS RELATIONSHIP: While a relationship with businesses may provide consumers with the goods and services that they desire, there is also conflict between the two. As businesses strive to achieve the highest possible profit, they can find themselves at odds with consumers who desire cheaper products and workers who desire higher wages. There is great debate over whether businesses have an unfair advantage over individuals in this relationship due to the large profits that often flow to business owners and investors. Critics of this system believe that workers can control the production of goods and services themselves, without the need for business owners.
THE HOUSEHOLD SECTOR: The household sector refers to the individuals or consumers who work for businesses. In return for the labour that they provide, they receive an income or wage from the business. The individuals then use this money to buy goods and services from various other businesses. In this way, money, goods and services keep flowing through the economy to satisfy the needs and wants of consumers.
MAKING CHOICES
Making choices is when consumers make small or big choices about what we want to buy to satisfy our needs and wants.Part of our need to make choices results from the concept of scarcity. Our resources are limited, we are not able to own everything we want or need. We must therefore decide or prioritise what we want to consume using the resources available to us.
When we make these decisions we might need to make financial choices (such as how much money to save or spend), business decisions (such as what to produce or where to sell a product), employment decisions (such as what career path to follow) and legal decisions (such as whether or not to take legal action over a faulty product).
ALLOCATION & MARKETS
ALLOCATION: refers to the way we distribute our scarce resources among producers. It also refers to the way we then distribute scarce goods or services among consumers.
There are many ways to distribute resources. The exchange of goods and services (or resources) among buyers and sellers is referred to as a market. Our market economy usually determines how resources will be distributed. This means we often rely on price to determine how much we are able to produce and consume.
THE LABOUR MARKET: The labour market is where workers sell their skills, knowledge and effort to employers. In return for their labour, the employer will pay the workers a wage. This is how most people in our society earn an income.
THE STOCK MARKET: The stock market or sharemarket is where shares in Australian companies are bought and sold. These shares represent part ownership of a company. Owning shares in a company entitles the shareholder to a portion of the company’s profits.
THE HOUSING MARKET: The housing market is where houses are bought and sold. Most people desire security of owning there own home. If you are pretty wealthy, it is possible to own more than one house which you can make money off buy the house being leased out to a tenant in exchange for rent. Unfortunately as people invest in houses, the prices increase, making it much more difficulty to afford.
FOREIGN EXCHANGE: The foreign exchange market is the largest market in the world, where different currencies from around the world are bought and sold. Some people and businesses will trade currencies so that they can make purchases or other payments in other nations using the local currency. Foreign exchange traders will try to make money by anticipating changes in the value of certain currencies. For example, they might buy a currency when it is not worth much, and sell it again when it increases in value.
SCARCITY
Scarcity is the problem of having unlimited needs & wants, but limited resources available. An example is water. We need to manage the amount of water we use. For example, if we only have a limited amount of water, it is not a good idea for people to water their lawns and fill up their swimming pools. It would be better to save water for needs like growing food and drinking.
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ECONOMIC GROWTH MEASURED
INFLATION: Inflation occurs when there’s an increase in a general level of prices paid for goods & services over a certain period of time. Rising prices means consumers must pay more for goods & services if they want to continue to maintain their standard of living.
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Reasons for Inflation: Major factor causing rising prices is stronger demand in the economy for goods & services. Stronger demand can lead to shortages of goods & services therefore increasing prices. This may be due to consumers feeling confident about their future income & employment, businesses feeling confident about their future, trading partners such as China performing will increase export demands & low interest rates encouraging consumers to borrow more.
Measuring Inflation: The ABS measures inflation using the Consumer Price Index (CPI). CPI measures the price change of a typical basket of goods and services purchased by Australian households every quarter.
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GROSS DOMESTIC PRODUCT: easure of total value (in dollars) of all goods & services produced in Australia over a year. If GDP increases the economy is growing & if GDP decreases the economy is shrinking. ABS releases the GDP figures every quarter (3 months). Economists hope to see an economic growth of 2% per year.
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The Importance of Economic Growth: Economic growth is important because more goods & services are being produced, more people are being employed and paid wages, people are able to spend on a wider range of goods & services & improvement in living standards
Fall in Economic Growth: Recession is when economic growth falls for two or more quarters in a row (6 or months). Depression is classed as an extreme recession lasting two or more months. Economic growth falls, decrease in available credit, increased in unemployment & decrease in living standards.
UNEMPLOYMENT: all the people who are willing to work but cannot find a job. According to the ABS a person is considered employed if they're employed for at least 1 hour a week and aged 15 and over.
LABOUR FORCE: all the eligible works, everyone who has a job plus those who are looking for one
UNEMPLOYMENT RATE: the percentage of people in the labour force who are unemployed. It is measured by the number of unemployed people divided by the labour force, then multiplied by a hundred.
EFFECTS OF UNEMPLOYMENT:
ECONOMICAL: Economically, unemployment causes GDP to decrease, the loss of output, income and government revenue, as well as the increasing of government expenditure.
POLITICAL: Politically, unemployment leads to loss of faith in government because they’re seen to not care in creating more jobs or upskilling workers and also because high levels of employment reflect poorly on state and federal governments.
SOCIAL: Socially, unemployment causes a spike in homelessness, poverty, drug abuse, relationship tensions and even suicide rates.
YOUTH UNEMPLOYMENT: Unemployment rate is much higher among youth because technological changes in low skilled jobs. The youth unemployment rate is currently 10.5% and more than double the general unemployment rate.
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