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Economics and Business By Kaden Jones - Coggle Diagram
Economics and Business By Kaden Jones
Key Concepts
Interdependence
The way we rely on others to satisfy our needs and wants
Allocation and Markets
The way we distribute our scarce resources among producers
It also refers to the way we then distribute scarce goods or services among customers
The exchange of goods and services among buyers and sellers is referred to as a market
We often rely on price in order to determine how much we can produce and consume
Specialisation and Trade
The way an individual, business, or entire country can focus on the production of a good or service in order to develop a mere efficient competitive production process
Specialisation in an industry allows a country to become more efficient over time as productions increase and the country can take advantage of economies of scale
The mass production of goods is cheaper than producing goods or services in smaller quantities
Economic performance and living standards
Economists measure how well an economy is doing (known as economic performance) using a wide variety of methods. Some key indicators of economic performance include:
Inflation – The general increase in prices of goods and services
Gross Domestic Product (GPD) – total value of goods and services produced in a country over a year
Unemployment Rate – The percentage of people who are unemployed out all people who can work
Making Choices
In order to make good economic decision, we must consider our options. In addition to consumer decisions, we must make the following economic decisions:
Business decision (such as what to produce or where to sell the product)
Employment decisions (such as what career path to follow)
Financial choices (such as how much money to save or spend)
Legal decisions (such as whether to take legal action over faulty product)
Scarcity
The economic problem of having unlimited needs and wants, but limited resources available. Resources are divided into four categories:
Land – Natural resources such as coal and water
Capital – Manufactured resources such as equipment
Labour – Human resources such as workers
Entrepreneurship – Management resources such as the skills or talent required to bring the resources together
Inflation
Inflation is the general increase in prices paid for goods and services over a certain period of time
Reasons for Inflation
This may be to
Consumers feeling confident about their future income and employment
Business feeling confident about their future
Trading partners such as China performing well increase export demands
Major factor causing rising prices is stronger demand in the economy for goods and services
Stronger demand can lead to shortages of goods and services, therefore increasing price opportunities
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
Rising prices means consumers must pay more goods and service if they want to continue to maintain their standards of living
Who benefits from Inflation?
Borrowers
Importers
High income earners
Who is disadvantaged by inflation
Bank savers
Exporters
Low to middle income earners
Article analysis topic
Unemployment Rate
The unemployment rate is the percentage of people who are unemployed out all people who can work. The proportion of the labour force who do not have a job
The labour force refers to all the eligible workers. Everyone who has a job plus those who are looking for one
GDP
Gross Domestic Product (GDP) is the total value of goods and services produced in a country over a year.
The importance of economic growth
More people are being employed and paid wages
People can spend on a wider range of goods and services
More goods and services are being produced
Improvement in living standards
Fall in economic growth
Recession - when economic growth falls for two more quarters
Depression - classed as an extreme recession lasting two or more years
Decrease in available credit
Increase in unemployment
Economic growth falls
Decrease in living standards
Measuring Economic Performance
Unemployment
Types
Cyclical unemployment
Also known as demand-deficient unemployment
It is common during a recession phase
During wear economic growth, consumers are not buying as many goods and services
Firms/businesses respond by cutting down production and firing workers
Seasonal unemployment
This is related to occupations that are offered at particular times of the year
Examples: fruit pickers, skiing resorts, sheep shearing
Frictional unemployment
Refers to the time spent waiting for a new job
It is the period between finishing one job and starting another
This type of unemployment is usually voluntary and of the shortest duration
Hard-core unemployment
Includes those regarded as being virtually unemployable
They may be chronically ill, have a disability, unskilled, unqualified, inexperienced or disinterested
Structural unemployment
Refers to loss of jobs resulting from mismatch of skills or machines replacing labour
For example: automatic teller machines, self-serve outlets
Causes
Impacts
Economic
Loss of income: no jobs means no money and higher reliance on government assistance
Loss of government revenue: less people employed means less tax revenue for the government
Loss of outputs: the production of goods and services reduces
Increase government expenditure: large proportion of labour force unemployed, means government spending on welfare will increase
Political
High levels of unemployment reflect poorly on that state and federal governments
Leads to a loss of faith in the current government
Social
Increase in crime and drug abuse
Increase in suicides and other mental health issues
Lower standard of living
Increased family tensions/breakups
Loss of self-esteem and confidence
Unemployment - Refers to all those people who are able and willing to work but cannot find a job
Living Standards
Material
Material living standards refers to our access to physical goods and services
Material living standards of a nation is measured by the quantity of goods and services available each year as measured by GDP
Non-material
Non-material living standards cannot be measured in dollar terms, and are intangible
For example: Freedom of speech, low levels of crime and discrimination, Preservation of the environment and Adequate leisure time
Examples from two countries
A material living standard example is cars, Australia is abundant with cars, but a poorer country such as South Sudan does not.
A Non-material living standard is freedom of speech and Australia has this, but a dictatorship country such as North Korea does not.
Factors that influence financial decisions
Marketing
A company's marking methods can influence a consumer's decision to buy
Conveys the value of a good or service
Age and Gender of consumer
As we age, we have different needs
Marketers may specifically target men or women to buy their product
Availability of credit
Credit is an agreement where money is lent to a borrower and must repaid later
Credit cards are an example
Availability refers to how easy it is to borrow
Spending too much on credit can lead to debt that is difficult to repay. One of the mist common reasons for bankruptcy
Convenience
Items that save the consumer time are easier to use are often preferred
E.g. ready-made meals have experienced a 4% annual growth over the last five years with revenue from the ready-made meal sector worth around $900 million each year in Australia
Price
Price is sometimes associated with the quality of the product
If prices are too low`, consumers become suspicious of its quality
Not all consumers are interested in paying the lowest price for an item
If the price is too high, then consumers might be discouraged to buy the product, save money, not fall in debt
Ethical and Environmental Considerations
Ethics are standards that provide guidance on what is considered right and wrong
Many consumers wish to purchase products that have been produced in a way that is consistent with their beliefs
Policies to improve living standards
Macroeconomics policies
Monetary policy
The main focus of the monetary policy is changing official interest rates, which ultimately changes the rate of interest paid on a bank loan
Interest is the cost of borrowing money or the return on lending money
If interest rates rise, demand for goods and services may be curbed, leading to lower spending
Budgetary policy
Definition - A budget to track revenue and expenditure made by the government for citizens. The government has the role of managing the budget for the whole of a nation.
If the government budget for welfare goes down then people on welfare payments are affected.
It shows citizens how much the government will be spending, allowing people to prepare finances
Macroeconomic policies are economic policies that affect the whole of a nation, such as budgetary and monetary policies
Microeconomic policies
Trade liberation
Trade liberation is opening up markets for free trade so that countries can trade without restrictions
It promotes efficiency, producers must find ways to compete by cutting costs and becoming more innovative
Deregulation
The removal of government regulation in a certain area of the economy
It can overtime get rid of unneeded rules and laws, for the greater good
Microeconomic policies are policies that affect a particular company (such as Qantas), an industry (such as the car industry) or a market (such as the export market).
Labour market reform
A movement away from government institutions determining wages and working conditions to a system where wages and working conditions are determined directly at the enterprise level between employers and employees
The employer may gain improvements in work efficiency and the employee might gain better benefits and more flexibility
Other policies
Productivity policy
Productivity measures how effectively resources are used to produce a given level of output. Productivity policies can refer to privatisation of government-owned business, Telstra, Government policy committed to education and research and development, Innovation policies, Labour market reform, trade liberalisation and deregulation.
Productivity tasks improve living standards by using resources more efficiently, which means increased production
Productivity policies are policies made or just increase productivity of a task
Training and workforce development policy
Workforce development focuses on improving the workforce so that more can be produced. Development of the workforce may focus on helping low-skilled workers access training programs to improve their knowledge and skill
Training and workforce development policies aim to provide the necessary labour resources to produce more goods and services to increase economic growth and the standard of living
Migration policy
The movement of people from one place in the world to another to live permanently or temporarily. The governments migration policy deals with people that apply to enter Australia or people that seek asylum in Australia. The Australian government decides who is eligible to come to Australia each year based on criteria as such: security, health, skills, english and education, age, family connections and humanitarian needs.
The focus of Australia's migration program has been migrants to provide skilled labour in areas needed in the economy. Some economists believe that immigration boosts economic growth and therefore the standard of living as immigrants consume goods and services, which in turn leads to greater spending and therefore employment and growth.
