Rowville Secondary College Economics

1. Rowville Secondary College Economics Mr Desler (Careers Room- next to Room 27) desler.marcus.a@edumail.vic.gov.au

2. Do Now Activity – List 10+ eco. terms

3. Learning intention: • Review the work covered in Head Start last year • Success Criteria • You have answered or can now answer all the questions from Chapter 1 with confidence

4. Success in VCE Economics= achieving your best • Keep notes and handouts organised (a workbook for any class notes and exercises done and a folder with plastic sleeves for handouts and tabs/dividers to separate work into topics) • Keep notes neat with headings and subheadings, bullet points (some students retype the powerpoint slides from class) • Prepare summary notes from the textbook ?? • WORK ON A CONSISTENT BASIS (a bit most days – 35+ minutes - not a lot one day and nothing for 6 days) • DO THE MAJORITY OF THE TASKS GIVEN TO YOU • Make effective use of class time • Review the day’s lesson in the evening (look at the class slides / read the textbook(s) • Have some interest in current events / affairs affecting Australia • Do the review questions given to you before an assessment (SAC)

5. Housekeeping les apply i this classroom, in particular: • Punctuality • Prepared (bring all stationery) • Respect for others (listen when someone is speaking) • Effort all the time in the classroom ! • No phones or iPods etc. except when I say • Water bottles only (no other drinks or food – eat before you arrive)

6. Unit 3 Area of study 1 What is economics ? • Economics looks at how limited resourcesare used to produce goods and services which are then distributed to people to satisfy their unlimitedneeds and wants • How can we as a society organise ourselves and use the resources available to maximise people’s standard of living

7. Microeconomics Examines a particular part or section of an economy • A particular market (car, housing, fruit & vegetable) • A particular industry (agriculture, manufacturing, tourism, retail etc) • A particular sector of the economy (household sector, business sector or government sector)

8. Macroeconomics Takes a look at the economy as a whole and how it is progressing (the ‘health’ of the economy) • Overall changes in prices (inflation) • Jobs growth • The level of unemployment • Level of trade with other countries (imports and exports of goods and services) • Interest rate movements by the RBA (Reserve Bank) • Changes in ‘national production’ – Gross domestic product (GDP)

9. Standard of living Material Non-material Material standard of living • An individual’s access to and consumption of goods and services (as a country this can be improved by increasing gross domestic product (GDP) – the total value of final goods and services produced in an economy over a certain period of time)

10. Non-material living standards • Quality of life (level of happiness / health / friendships / family connections / amount of leisure time available / freedom / crime / pollution / equality of opportunity / crowding and congestion / stress etc)

11. LIVING STANDARDS MaterialvsNon-material Material and non-material living standards can be in conflict with one another – often to pursue one means to reduce the other

12. Resources (factors of production) Resources – inputs used by business to produce goods and services Types of resources: • Human resources The physical and mental efforts of people in the production of goods and services • Entrepreneurial / Enterprise resources The risk taking and management skills and organisation of individuals who set up and operate a business

13. Factors of production (resources) • Capital resources Plant, machinery and equipment used in the production of final goods and services for consumers • Natural resources The gifts of nature which a country possesses eg: solar / minerals underground / soil / forests / oceans / rivers / climate

14. Classifying goods and services Collective goods and services • Goods and services produced or provided mainly by Government for the use / benefit of all in society Producer goods and services • Goods and services required by businesses to create final goods and services for consumers Consumer goods and services • Final goods and services that are purchased by individual households

15. Why needs and wants are unlimited NEEDS AND WANTS FROM HOUSEHOLDS (individuals) BUSINESSES GOVERNMENT OVERSEAS COUNTRIES Caused by an increasing population, materialistic attitudes of society, intense advertising by businesses, planned obscelecense of products, re-occurring needs (food)

16. Relative scarcity (the basic economic problem) • The imbalance between our unlimited wants and the limited resources that are available • Our society cannot produce everything it needs and wants • Can only produce a certain level of output (GDP) • The economy can only expand at a certain rate • Need to make choices as to what should be produced and what needs to be forgone or not produced

17. The basic economic problem Limited resources available to produce goods and services Unlimited needs and wants by people SCARCITY • Most goods and services have a price because they are scarce (the scarcer the item, the higher the price) • Scarcity restricts living standards of a nation because we can’t have everything we want • Countries with access to more resources or use them more efficiently can have higher standards of living compared to other countries

18. Scarcity leads to making choices • Choices need to be made about what goods and services will be produced with our limited resources • Choice on the best use of our limited resources leads to the notion of ‘opportunity cost’ • Opportunity cost is the benefit forgone by not using resources for there next best alternative use (cost can include $ lost, time lost etc)

19. Time to smell the roses Show the connections between the terms & concepts below in a mind map – you have 25 minutes • Living standards • Material living standards • Non-material living standards • People’s behaviour • Models & calculations/equations • The BASIC ECONOMIC PROBLEM • Social Science • Microeconomics • Macroeconomics • Individual markets, sectors, industries • The economy as a whole • Choices • Opportunity cost • Limited resources • Unlimited needs and wants • Collective goods and services • Consumer goods and services • Producer goods and services • Scarcity • Labour resources • Natural resources • Capital resources • Households • Businesses • Overseas countries • Government

20. Production possibility diagram • A ‘PPD’ shows the possible combinations of goods & services & the concept of opportunity cost faced by a nation in deciding what choice of goods and services will be produced. C Goods A B Services

21. Points on the PPF • C: a combination of goods and services which is not attainable by the economy at present • A: the various combinations of goods and services which are possible if the economy is operating at full capacity (using all it’s resources) • B:a combination of goods and services which is not using all the resources available in the economy (under-utlilisation of resources)

22. How can a nation increase it’s production possibility frontier ? • Increasing skilled migration (labour resource increases) • Improvements in productivity levels of employees • Improvements in technology to increase efficiency and productivity • Increases in foreign investment (more capital resources) • Discoveries of more natural resources

23. Types of efficiency Allocative Efficiency • An efficient allocation of resources is the best combination of goods and services produced so that living standards are maximisedwhich is a particular point on the ‘PPF’. Technical Efficiency • A technically efficient allocation of resources refers to an economy operating at maximum productivity & output (operating at the lowest possible costs) which is any point along the ‘PPF’.

24. Types of efficiency Inter-temporal Efficiency • Having the right combination of resources used for production of consumer items and resources being used for production of capital goods & infrastructure to improve future production and assist future generations Dynamic Efficiency A country is dynamically efficient if it is able to change production to take advantage of new technology to benefit it’s society (change from using labour to machine based production or from fossil fuels to renewable energy sources

25. Factors that influence the decision-making of households, businesses and government Households • Income levels • interest rates • fashions & fads • advertising in the media • traditions & customs (culture) • state of the economy – boom or recession influences household confidence and thus spending choices • pressure groups in society (Greenpeace, Consumer action groups like ‘Choice’, political parties) can influence household spending choices

26. Factors that influence the decision-making of households, businesses and government Businesses • Government policies and laws • interest rates • state of the economy affects business confidence and whether they invest and expand • Number of competitors locally and overseas • resources available and their price • people’s fashions and tastes influence what businesses produce • technology available for use • Pressure from trade unions (organisations that represent employees on pay and conditions) • Changing demographics (an ageing population)

27. Factors that influence the decision-making of households, businesses and government Government • State of the economy affects government spending (in a ‘downturn’ governments will spend more to stimulate the economy) • amount of tax revenue available for use • pressure groups in society influence governments • Employer associations (represent employers) pressure governments for business-friendly policies • society attitudes to issues and where tax revenues should be spent • opposition political parties • Changing demographics (an ageing population)

28. An economy: • a system that exists to organise the production of goods & services, the distribution of incomes as well as the distribution of goods & services based on consumer expenditure. Production Incomes Expenditure (Spending) (Distribution of goods & services)

29. Economic system Three questions an economic system needs to answer 1 What and how much to produce ? • (how are resources to be allocated or used) – left mainly to the market mechanism or price system in Australia – interaction of buyers and sellers 2 How to produce ? • The lowest cost method will be adopted as firms wish to maximise profits – how much labour vs capital resources should we use ? 3 For whom to produce for ? • Who will receive goods and services and incomes- distribute evenly (or unevenly via the market ?)

30. Australia = a ‘contemporary market capitalist economy’ • Approximately 80% of resources privately owned & 20% are Government owned • On the whole consumers influence business decisions & production by their behaviour (what they buy and do not buy) – 80% of resources allocated through the ‘market’ – consumers sending ‘signals’ to businesses • Government also interferes somewhat in the economy to influence what and how much is produced (20% of resources are allocated by Government) because of MARKET FAILURE

31. Economic systems Contemporary Market Capitalism 80% of resources non-government owned, 20% government owned. Decision making mostly by consumers & businesses but some government interference Pure Market Capitalism Individuals own resources and consumers decide what and how much is produced. NO GOVERNMENT INTERVENTION Planned Socialism Government control of resources and decision making on what and how much is produced

32. How does the market mechanism / price system allocate resources in the economy • In a market economy, businesses receive signals from consumers. Businesses will only produce goods and services which are most profitable for them and will choose the method of production which minimises their cost of production. • When the final prices of goods and services increase due to higher consumer demand, this indicates to businesses that there is a shortage or underproduction of that product and thus an under-allocation of resources. Businesses and owners of resources will want to re-allocate scarce resources & start producing this product or increase production of the product as there is more profit to be made from this product than other alternative uses for the scarce resources. • If demand and the final prices of goods and services decrease , this indicates to producers and owners of resources that there is an oversupply or overproduction of the product and thus too many resources have been allocated in this area. Profit margins on the product will be reduced and so businesses and owners of resources will no longer be prepared to allocate resources to production of this product and will look to allocate scarce resources elsewhere where greater profits can be obtained.

33. The operation of the market mechanism (demand and supply) The law of demand • As the price of a good or service increases, there will be a decrease in demand for that item as less consumers can afford the item. • As the price of a good or service decreases, there will be an increase in demand for the item because it becomes more affordable for more consumers • There is an inverse relationship between the price and the quantity demanded

34. The law of Demand (packet of Dorritos) The demand line shows the quantity demanded of a particular item by consumers at different prices for the item Price D 0 Quantity

35. Movements along the demand line (contractions and expansions) There is a movement along the demand line when there is a change in price Price Contraction in demand Expansion in demand Quantity

36. Shifts in the demand line (increase in demand due to factors OTHER THAN PRICE CHANGES) • Buyers may change their demand for an item over a range of prices. This will cause a shift in the demand line An increase in demand (D to D1) – buyers want more of the product at a given price than before over a range of prices Price $4 $3 D1 D 0 1000 2000 5000 4000 Quantity

37. A shift of the demand line to the right (an increase in demand for an item over a range of prices) An increase in demand over a range of prices is caused by: • An increase in disposable income (wage rises, decrease in personal tax rates, working longer hours) • Increase in the price of SUBSTITUTE products • Decreases in the prices of COMPLEMENTARY products • Increase in the population or increase in the population target market for that item

38. A shift of the demand line to the right (an increase in demand for an item over a range of prices) • An increase in demand over a range of prices is caused by: • Increase in consumer confidence • The item becomes more fashionable (preferences & tastes change) • Decreases in interest rates on loans leaves more income to purchase goods & services • (Advertising campaigns to promote the product have been more successful or there has been less advertising on substitute products)

39. Shifts in the demand line (decrease in demand) • An decrease in demand (D to D2) – buyers want less of the product at a given price than before over a range of prices Price $4 $3 D D2 0 1000 2000 5000 4000 Quantity

40. A shift in the demand line to the left (a decrease in demand over a range of prices) A shift of the demand line to the left is caused by: • A decrease in disposable income (less hours worked, increase in personal tax rates, lower wage rates) • Decreases in the population or the population of the target market • Decreases in consumer confidence (sentiment) • The prices of SUBSTITUTE products decreases

41. A shift in the demand line to the left (a decrease in demand over a range of prices) • A shift of the demand line to the left is caused by: • The price of COMPLEMENTARY products increases • Increases in the interest rate on borrowed funds – less discretionary income for purchases • The product is becoming less fashionable (preferences & tastes change) • (More advertising is occurring on substitute products or less advertising on this product)

42. Do Now Activity Fill in the blanks Australia has a 1_______ _______ ________ economy. 2___% of resources are 3______ owned and 4____% of decision making is done by 5_____ & ______. So the 6 m _____ m _______ allocates 7____% of resources in our economy. The 8 m____ m____ allocates resources through 9_____ sending ______ to businesses. Businesses will only allocate their scare resources to 10 p_______activities and use the 11______ cost possible in 12_____. When consumers want more of an item this indicates to businesses that there could be 13__________ of that product. Business will 14_______ _______ ________to that product because 15_______ are there to be made. When consumers reject or stop purchasing an item, this indicates to businesses that there is an 16_________ of resources to the production of the item. Businesses will take 17______ _______away from production of the item as there are 18____ _____ to be made now from the product. The law of demand says that when 19______ _____, demand 20 ______ and when 21_____ _____, demand will 22______. Movements along the demand line are caused by changes in the 23_______ of the product. The demand line may shift or move (an increase or decrease of demand over a range of prices) because of 24____________, 25_____________, 26 __________________, 27____________.

43. The behaviour of sellers (suppliers) in the market The Law of supply • As prices rise, producers will supply more of the product to the market (due to greater profits being made per item) • As prices fall, producers will supply less of the product to the market as profits will be lower per item

44. The Law of Supply (packet of Dorritos) • The supply line shows the quantity sellers are willing to supply the market at certain prices of the good or service S Price 0 Quantity

45. Movements along the supply line (expansions and contractions) – caused by changes in the price of the good or service Price There will be a movement along the supply line if there is a change in price Expansion in supply Contraction in supply 0 Quantity

46. Increases in supply of a product over a range of prices (shifts in the supply line to the right) • Sellers may decide to increase their production or supply of a product over a range of prices (shift of the supply line to the right from S to S1) S Price S1 $4 $2 0 1000 3000 3700 5000 Quantity

47. An increase in supply at a particular price Factors which could cause this are: • Decreases in the costs of production (raw materials, energy prices, interest rate decreases) • Introduce better technology, so can produce at a cheaper cost or produce more with the same level of resources • Using the existing resources more productively so can produce more at the same cost as before • (More Government subsidies (financial assistance handouts) for the industry) • Changes in climate (favourable climatic conditions) for agricultural products

48. A shift in the supply line to the left (a decrease in supply at a particular price over a range of prices) • Sellers may decide to decrease their production or supply of a product over a range of prices (shift of the supply line to the left from S to S2) S2 Price S $4 $2 0 1000 3000 3700 5000 Quantity

49. A decrease in supply over a range of prices may be caused by: • Increase in production costs of the product (wage rises, energy cost increases, interest rate rises, raw material price increases) • Change in the climate (unfavourable climatic conditions) • (Reduction of or scrapping of subsidies to businesses in the industry) • Less use of efficient technology means lower production and higher costs of producing a product • Lower productivity levels of labour and capital resources

50. Equilibrium or market price S Price The quantity supplied equals the quantity demanded at a particular price D Quantity