History
Preliminary Economics
Topic One: Introduction to Economics
The Nature of Economics
The Economic Problem: Wants are unlimited but resources are scarce
A Market Economy is when all major economic decisions are made by individuals and business who are motivated by self-interest
A Centrally Planned Economy is where the government structures and runs the market and makes all economic decisions
Australia operates with a Mixed Economy, with elements of both a Market Economy and a Centrally Planned Economy
The government intervenes in all steps of the production process:
What to produce?
Government acts as a producer, mostly for public goods e.g. libraries, parks
Government bans some goods from being produced, e.g. cocaine
How much to produce?
Government limits production of some goods with taxes etc.
Government encourages production of some goods with incentives
How to produce?
Government regulates hiring of labour, wages, working conditions etc
How to distribute production?
Government decides on individual’s income through income tax
Reasons for government intervention include allocating Public Goods, restricting production of Demerit Goods, ensuring fair income distribution and promoting economic stability
Capital Goods refer to goods that are purchased to improve productive capacity in the future, e.g. machinery; Consumer Goods refer to goods that are purchased to satisfy immediate wants/ needs
Opportunity Cost is the loss of the ability to gain a good when an alternative is chosen
For example, if we can only have 200 pieces of fruit and we currently 150 apples and 50 oranges, the opportunity cost of gaining an extra 50 apples is 50 oranges
A Production Possibility Frontier demonstrates the concept of opportunity cost
A PPF assumes there are only two goods, technology is constant, quantity of resources remains the same and are fully employed
In this graph, ‘X’ demonstrates a point in which resources are not
Topic One: Introduction to Economics
The Nature of Economics
The Economic Problem: Wants are unlimited but resources are scarce
A Market Economy is when all major economic decisions are made by individuals and business who are motivated by self-interest
A Centrally Planned Economy is where the government structures and runs the market and makes all economic decisions
Australia operates with a Mixed Economy, with elements of both a Market Economy and a Centrally Planned Economy
The government intervenes in all steps of the production process:
What to produce?
Government acts as a producer, mostly for public goods e.g. libraries, parks
Government bans some goods from being produced, e.g. cocaine
How much to produce?
Government limits production of some goods with taxes etc.
Government encourages production of some goods with incentives
How to produce?
Government regulates hiring of labour, wages, working conditions etc
How to distribute production?
Government decides on individual’s income through income tax
Reasons for government intervention include allocating Public Goods, restricting production of Demerit Goods, ensuring fair income distribution and promoting economic stability
Capital Goods refer to goods that are purchased to improve productive capacity in the future, e.g. machinery; Consumer Goods refer to goods that are purchased to satisfy immediate wants/ needs
Opportunity Cost is the loss of the ability to gain a good when an alternative is chosen
For example, if we can only have 200 pieces of fruit and we currently 150 apples and 50 oranges, the opportunity cost of gaining an extra 50 apples is 50 oranges
A Production Possibility Frontier demonstrates the concept of opportunity cost
A PPF assumes there are only two goods, technology is constant, quantity of resources remains the same and are fully employed
In this graph, ‘X’ demonstrates a point in which resources are not