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The Australian Economy. Introduction to economics. 1. What is economics?. 2. What do we mean by economise?. 3. Who is effected by economics?. 4. Why is economics important?. Questions to consider. 1. What is economics?.

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The Australian Economy

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The australian economy

The Australian Economy

Introduction to economics


Questions to consider

1. What is economics?

2. What do we mean by economise?

3.Who is effected by economics?

4. Why is economics important?

Questions to consider


1 what is economics

1. What is economics?

  • Economics is a term that is generally used to refer to how a nation tries to satisfy people’s needs (such as clean water, food, shelter and health care) and wants (non-essential goods and services) with limited resources.


Satisfaction of individual human wants

Satisfaction of Individual Human ‘wants’

Q: How do people satisfy their material wants?


Satisfaction of collective society wants

Satisfaction of collective Society ‘wants’

Q: How does Society satisfy its needs & wants?


The australian economy

INSATIABLE WANTS + LIMITED RESOURCES =

THE NEED TO ECONOMISE


More more more

More More More!

Gmeee,

Gmeee,

Gmeee

  • Can people’s wants be satisfied in the long run?

  • Can we have everything we want? Why not?


2 what do we mean by economise

2. What do we mean by Economise

Best case scenario:

Maximise our satisfaction with our limited resources;

  • i.e. choose how to use our resources to our greatest advantage

ECONOMISE


Concept of scarcity

Concept of scarcity

How to best use limited resources (SUPPLY)

VS

How to best satisfy the unlimited wants of society (DEMAND)


Supply how to best use limited resources

SUPPLY: How to best use limited resources

  • Natural resources – Land

  • Human resources – Labour

  • Capital resources – Machinery & buildings

  • Enterprise resources – Management


Demand how to best satisfy the unlimited wants of society

DEMAND: How to best satisfy the unlimited wants of society

  • Households - To Maximise their satisfaction through the consumption of goods and services

  • Businesses - To maximize profits. Keeping production cost low can help to maximise profits

  • Governments - To lower unemployment, keep prices stable (i.e. low INFLATION); increase economic growth; raise living standards; regulate income distribution; keep Australia economically viable.


Scarcity choice

SUPPLY

LIMITED RESOURCES

DEMAND

INSAIABLE WANTS & NEEDS

SUPPLY

Satisfying Wants & Needs

Scarcity & choice

  • Scarcity of resources forces the need for individuals and society to make choices


Choice opportunity cost

Choice & Opportunity Cost

  • Choice Results in opportunity cost

  • Opportunity cost is the cost of undertaking one economic activity instead of another that is the best alternative.

  • The aim of economising is to minimise opportunity cost; that is, they put their resources to the best use possible.


The australian economy

The economic problem?

"Economic problems arise as the individual or the community has to make the most efficient use of its limited resources and is confronted with the problem of choice. Economics is accordingly concerned with the arrangements that are made to most efficiently use of scarce resources"


3 who is effected by economics economics you

3. Who is Effected by Economics?Economics &You

  • All people are touched by economic decisions on multiple occasions every day.

  • Economic decisions taken by individuals, groups, businesses and governments have effects on the welfare of nations and regions; today these effects are increasingly global in their impact.


Society s economic challenge

SUPPLY

LIMITED RESOURCES

DEMAND

INSAIABLE WANTS & NEEDS

SUPPLY

Satisfying Wants & Needs

Society’s Economic Challenge

  • A major challenge facing societies in the twenty-first century is how to balance further growth of living standards and improvement in the distribution of the world’s income and wealth, with protection of the environment and the maintenance of liberal democratic government.


Taking responsibility

Taking Responsibility

  • As a citizen, everyone has to make decisions on a wide variety of economic problems of personal, local, state, national and international significance.


4 why is economics important

4. Why is Economics Important?

The Need for Economic Understanding!

  • The extensive media coverage of economic issues, problems and events has, in recent years, highlighted the need for increased community awareness of the economic environment in which we live and the economic forces that act upon our lives.


The benefits of economic literacy

The Benefits of Economic Literacy

By studying Economics at school you have the opportunity to take on this challenge & manage resource scarcity and address the requirements for human survival and economic sustainability.

The study of Economics is a huge asset to a student’s education as it develops life long learning skills crucial to their success in the real world.


Core economic knowledge

Core Economic knowledge

  • to understand how goods and services are produced and distributed

  • to recognize themselves as producers and consumers of goods and services

  • to analyse the interaction of economic policy and economic activity and how decisions on these matters impact on individuals and broader society

  • make rational economic choices both in their own lives and in their participation in policy decisions as citizens of a city, state, nation, and the world

  • interpret local, national and global economic events and their likely impact on the wellbeing of themselves and others

  • appreciate the interdependency of individuals and nations for having needs met and the disparities between individuals and nations


Advantages

Advantages

Students who develop their economic literacy are in a better position to:

  • act rationally and ethically when making economic and personal financial decisions

  • influence others to do likewise

  • appreciate the complexity of economic decision-making and to better understand the economic decisions made by others

  • manage their personal affairs better

  • be more effective and productive members of society as they are capable of making reasonable judgments on public policy issues that have a bearing on their personal prospects and those of the nation


Career pathways

Career Pathways

Career pathways for students intending to pursue a career in this area include:

  • Economist

  • Statistician

  • Commerce Teacher

  • Banking

  • Small Business Owner

Stock market

Investment advice

Politics

Government and international trade


Careers foundations

Careers Foundations

Economics provides a foundation for careers in:

  • Accounting

  • Business

  • Government and politics

  • Finance and insurance

  • Information technology

Law

Management

Marketing and tourism

Public policy

Teaching and education


Markets economics

Markets & Economics

  • The study of economics involves looking at the nature of markets.

  • Through a market economic view we look at how:

    • goods and services are produced and consumed

    • income is earned and spent on a national basis

  • It uses price signals (Price Mechanism) to indicate what products consumers do or do not want to see produced


  • Introduction to markets

    Introduction to Markets

    • A market does NOT have to be a physical place like a shop, it can also be a virtual one, like the money market.

    • The market place consists of all those who have items/services for sale and all those who are interested in buying those items/services

    • Many businesses have global markets because of the developments in technology


    Introduction to markets1

    Introduction to Markets

    • The range of markets:

      • Organised markets – commodities e.g. rubber, oil, sugar, wheat, gold, copper, etc.

      • Financial markets – stocks, shares, currencies, financial instruments

      • Goods markets – the supply and demand of goods and services in general, food, clothing, leisure, houses, cars, etc.

      • Factor markets – the supply and demand of factors of production – land, labour and capital


    What is a market

    What is a market?

    • A market – is any place or process that brings together buyers and sellers with a view to agreeing a price

    • The basis of how an economy operates – through production and subsequent exchange

    • A market is - what our economy uses to answer the three basic economic questions

      • 1. What to produce?

      • 2. How to produce?

      • 3. For whom to produce?


    The economic problem

    The Economic Problem

    • 1. What goods and services should an economy produce? – should the emphasis be on agriculture, manufacturing or services, should it be on sport and leisure or housing?

    • 2. How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency/Management?

    • 3. Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?


    Production possibility frontiers

    Production Possibility Frontiers

    If it devotes all resources to capital goods it could produce a maximum of Ym.

    If it devotes all its resources to consumer goods it could produce a maximum of Xm

    If the country is at point A on the PPF It can produce the combination of Yo capital goods and Xo consumer goods

    Assume a country can produce two types of goods with its resources – capital goods and consumer goods

    Capital Goods

    If it reallocates its resources (moving round the PPF from A to B) it can produce more consumer goods but only at the expense of fewer capital goods. The opportunity cost of producing an extra Xo – X1 consumer goods is Yo – Y1 capital goods.

    Ym

    A

    Yo

    B

    Y1

    Consumer Goods

    Xo

    X1

    Xm


    The australian economy

    Production Possibility Frontiers

    It can only produce at points outside the PPF if it finds a way of expanding its resources or improves the productivity of those resources it already has. This will push the PPF further outwards.

    Production inside the PPF – e.g. point B means the country is not using all its resources

    Capital Goods

    C

    Y1

    A

    .B

    Yo

    Xo

    X1

    Consumer Goods


    Price mechanism

    Price Mechanism

    • Price mechanism is a system where by producer supply and consumer demand interact in the marketplace to set the prices for goods and services

    • Consumer demand is the and of the buyer to pay the actual asking price for the good

    • Supply is the quantity of that commodity that will be provided by the buyer at a particular price

    willingness

    ability


    Prices

    Prices

    • Prices help consumers decide which of their wants is the most important and a desire for profit stimulates efficient resources use by each supplier and helps to smooth out imbalance over in oversupply and undersupply

    • The price mechanism also plays a role in the distribution of wealth, through the generation profits wages for successful suppliers in markets where there is demand


    Controlling the market economy

    Controlling The Market Economy

    DEMAND

    DEMAND

    SUPPLY

    SUPPLY

    – reflects the degree of value consumers place on items – price and satisfaction gained from purchase (utility)

    – the amount consumers desire to purchase at various alternative prices

    – reflects the cost of the resources used in production and the returns/profits required

    – the amount producers are willing to offer for sale at various prices


    The australian economy

    • Market demand – consists of the sum of all individual demand in the market

    • Represented by a demand curve

    • At higher prices, consumers generally willing to purchase less than at lower prices

    • *RULE* Demand curve – negative slope, downward sloping from left to right


    The law of demand

    Price of substitutes

    Price of complementary products

    Income

    Expectations

    Price of the product itself

    Preferences

    Factors of Demand

    The Law of demand

    • The demand curve slopes downwards from left to right indicating a negative relationship between demand and price. As price rises, this discourages buyers to buy more whereas a fall in price would lead to the quantity demanded to ______

    Factor affecting Demand


    Changes in the demand curve

    Changes in the DEMAND CURVE

    • Two (2) types of physical changes:

      1. Movement along the curveis caused by ONLY a:

      • change in price of the product

        2.Shift in the curve is caused by a change in any of the factorsother than the price of that particular product such as:

      • Level of disposable income

      • Preferences and tastes

      • Change in the Price of a Complementaryproduct

      • Change in the Price of a Substitute product

      • Consumer’s expectations

      • Size of the market

        These factors cause the demand curve to shift either:

        • Left (Less demanded at each price) D2

        • Right (More demanded at each price) D1

          see example on graph


    1 movement along the demand curve

    1. Movement along the DEMAND curve

    Movement along the DEMAND curve is caused by a change in the:

    • Price of the product itself


    The demand curve for lollipops

    The Demand Curve - For Lollipops

    PRICE CHANGE IN ACTION

    The demand curve slopes downwards from left to right (a negative slope) indicating the relationship between price and the quantity demanded. Demand will be higher at lower prices than at higher prices.

    As price falls, demand rises. P then D

    As price rises, demand falls. When P then D

    Price ($)

    $10

    The starting price of Lollipops was $10

    $5

    The price of Lollipop was then decreased to $5

    Demand

    100

    150

    At $5 the quantity demanded is increased to ???

    Quantity (000s)

    At $10 the quantity demanded is 100

    150


    Exercise task

    Exercise task

    • Draw the same demand curve for lollipops as the last slide. Label it as (D)

    • Label the two axis.

    • The initial price is $10 and the quantity demanded is 100. Mark this as point (a)

    • There is a change in price to $15. Does the quantity demanded rise or fall? Approximate the quantity demanded.


    2 shift of the demand curve

    2. Shift of the demand curve

    Shifts of the demand curve are caused by the following factors:

    • Level of disposable income

    • Preferences and tastes

    • Change in the Price of a Complementaryproduct

    • Change in the Price of a Substitute product

    • Consumer’s expectations

    • Size of the market


    The demand curve 2

    The Demand Curve 2

    Changes in any of the factors other than price causes the demand curve to shift either:

    • Left (Less demanded at each price) or

    • Right (More demanded at each price)


    The shift of demand curve hamburger

    The Shift Of Demand Curve – Hamburger

    SHIFT OF DEMAND CURVE IN ACTION

    Changes in any of the factors affecting demand other than price cause the entire demand curve to shift to the left (less demanded at each price) or to the right (more demanded at each price).

    Price (S)

    S10

    Action: Substitute Product ‘pizza’ went down significantly in price

    D1

    Demand

    D2

    Reaction: More people buy ‘pizza’ instead of hamburgers

    Resultant Shift: Less Demand for hamburgers which results in a shift to the left

    10

    100

    200

    Quantity

    Decrease demand from 100 -10


    Factors of supply

    Factors of supply

    The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sale whereas a fall in price would lead to the quantity supplied to fall.

    Price of the product

    Price of other products

    Price of inputs

    Factors of Supply


    Changes in the supply curve

    Changes in the SUPPLY CURVE

    • Two (2) types of physical changes:

      1.Movement alongthe curve is caused by ONLY by a

      • change in price.

        For eg. A price rise will see an  in supply because producers will anticipate large profits. Producers will suddenly want to produce those goods or services.

        2.Shift in the curve is caused by a change in any of the factors that will change the level of supply such as:

        • Expectations

        • Preferences

        • Income

        • Price of complementary product

        • Price of Substitute product

          These factors causes the demand curve to shift either:

        • Left (Less demanded at each price) D2

        • Right (More demanded at each price) D1

          see example on graph


    1 movement along the supply curve

    1. Movement along the SUPPLY curve

    Movement along the SUPPLY curve is caused by a change in the:

    • The price of the product itself- assuming the cost remain the same the higher, the price, the greater the profit on each item, meaning that the producer is willing to supply higher quantities the higher the price


    Movement along the supply curve

    Movement along the Supply Curve

    Price $

    Supply

    $7

    The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sale whereas a fall in price would lead to the quantity supplied to fall.

    $3

    800

    200

    Quantity (000s)


    2 shift of the supply curve

    2. Shift of the SUPPLY curve

    Shifts of the supply curve are caused by the following factors:

    • The price of inputs – the lower the price of inputs the more profit per unit and so the greater the quantities producers are willing to supply

    • The price of other products – for example if the price of other products rises and there is a perception of increased profits, then the producers may switch to supplying more of those products and less of the original


    The supply curve

    The Supply Curve

    • Changes in any of the factors OTHER than price cause a shift in the supply curve

    • A shift in supply to the left – the amount producers offer for sale at every price will be less

    • A shift in supply to the right – the amount producers wish to sell at every price increases

    • HINT: Be careful to not confuse supply going ‘up’ and ‘down’ with the direction of the shift!


    The australian economy

    SHIFT of The Supply Curve

    Price $

    S1

    Supply

    S2

    Changes in any of the factors affecting supply other than price will cause the entire supply curve to shift. A shift to the left results in a lower supply at each price; a shift to the right indicates a greater supply at each price.

    $4

    100

    400

    900

    Quantity (000s)


    The market

    The Market

    S

    Price ($)

    A shift in the demand curve to the left will reduce the demand to 300 from 500 at a price of £5. Suppliers do not have the information or time to adjust supply immediately and still offer 600 for sale at £5. This results in a market surplus (S > D)

    In an attempt to get rid of surplus stock, producers will accept lower prices. Lower prices in turn attract some consumers to buy. The process continues until the surplus disappears and equilibrium is once again reached.

    Surplus

    $5

    $3

    D1

    D

    300

    600

    Quantity Bought and Sold (000s)

    450


    The australian economy

    The Market

    S1

    S

    Price ($)

    A shift in the supply curve to the left would lead to less products being available for sale at every price. Suppliers would only be able to offer 100 units for sale at a price of £5 but consumers still desire to purchase 600. This creates a market shortage. (S < D)

    The shortage in the market would drive up prices as some consumers are prepared to pay more. The price will continue to rise until the shortage has been competed away and a new equilibrium position has been reached.

    $8

    $5

    Shortage

    D

    100

    600

    Quantity Bought and Sold (000s)

    350


    Factors of demand

    Price of S

    Price of C

    I

    E

    Price of the

    P

    Pr

    Factors of Demand

    Factors of Demand

    Test your memory…..


    Factors of supply1

    Factors of Supply

    Factors of supply

    • Test your memory….. What are the 3 factors that affect supply?


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