Preliminary Topic 1 - An Introduction to Economics

You have not studied economics before but when you open a newspaper or turn on the
television to watch the news you are confronted with economic terms and issues.
Inflation has risen.
Unemployment is up.
The value of the Australian dollar rose overnight against the greenback.
The size of the budget deficit has been reduced.
The Government wants a Carbon Tax.
The Reserve Bank has announced a decrease in the cash rate.
The All Ords index has risen on good profit forecasts.
Economics is about all of these things and many more. When you discuss with your friends
the price of an ipod going up or your parents complain about the price of petrol, you are
discussing economics. When you decide to continue on to study economics in year 11 instead
of going out to work or attending TAFE, you are making an economic decision. Now you
have the opportunity to understand what makes these things happen and why they are
important.
Economics is about making decisions. In this introductory topic you will discover why you
have to make decisions and why businesses and governments also have to make decisions.
You will look at some of the major decisions these groups make and examine the implications
of some of these decisions.

Activity 1.1 - The opportunity cost of being an economics student

1. Make a list of 6 alternative things you could be doing with your time in the next 2 years
instead of studying economics. Now rank them in order as to what you would most prefer
to do during the next two years.

1. What is your opportunity cost of studying economics?___________________

____________________________________________________________________
2. Why don't economists include all the alternatives when measuring opportunity cost?
____________________________________________________________________
____________________________________________________________________
3. Did you consider long-term future income, employment, and university entry in this
decision? How about interest and enjoyment? ____________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________
4. List in rank order the factors that are the most important in making your decision to stay at
school and study economics instead of your other opportunities. __________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________

Activity 1.2 What is the opportunity cost for a farmer?

Agriculture is an important sector for the Australian economy. In 2010 the value of farm
production was over $41 billion. In addition, the value of farm exports is forecast to increase
by close to 7 per cent in 2011-12 to $34.1 billion, following an estimated rise of 12 per cent
to $32 billion in 2010-11.
Farms in Australia have traditionally been family businesses, passed on from generation to
generation. However, since the 1950s, international economic factors and changes in farming
methods have lead to larger farms being more economically viable than small ones. The
number of farming families in Australia has steadily decreased and the average size of farms
has increased.
Different types of farming are mainly concentrated in the areas that suit them best, depending
on water availability and climatic conditions. Livestock grazing activity, mainly sheep and
cattle, takes up the most land in Australian agriculture. In addition crop growing contributes
to over fifty per cent of the value of Australian agriculture every year. Wheat and other grain
crops are spread fairly evenly across New South Wales, South Australia, Victoria, Western
Australia and Queensland. Australian farmers therefore have to make choices about the
amount of their land that they will use for grazing and the amount that will be used for
growing crops. In addition they need to decide the type of livestock they will have and the
type of crops that they will grow.
Let us consider the decisions that face farmer Jo. Jo has decided to graze sheep and grow
wheat. Jo now has to consider in what proportions the farms limited resources will be
allocated between sheep and wheat. Consider the following production possibilities schedule
for Jo.
Sheep (000)
Wheat (tns)

10
0

8
450

6
600

4
700

2
760

0
800

1. What choices do Australian farmers face? _________________________________

________________________________________________________________________
________________________________________________________________________
_________________________________________________________
2. What factors influence these choices? _____________________________________
________________________________________________________________________
______________________________________________________________
3. What is the opportunity cost of producing the first 2000 sheep? ______________
4. What is the opportunity cost of grazing another 2000 sheep? _________________
5. What has happened to the opportunity cost?___________________________
___________________________________________________________________
6. What does this tell the farmer about his resource use? ______________________
___________________________________________________________________
7. What is the opportunity cost of 450 tonnes of wheat? ________________________
8. What is the opportunity cost of 700 tonnes of wheat? ________________________
Plot the production possibilities schedule on the graph, on the next page, with sheep and
wheat on the axis. Remember to draw the graph to scale.

9. What do you notice about the shape of the curve? Do you know why it is this shape?
___________________________________________________________________
________________________________________________________________________
______________________________________________________________
10. The farmer wants to produce more sheep and wheat, so he asks you what he should do to
do
achieve
this.
What
alternatives
would
you
suggest
to
him?
________________________________________________________________________
________________________________________________________________________
_________________________________________________________

11. The farmer follows your recommendations. Draw in a new (hypothetical) curve showing
where the production possibilities function would now be.

Activity 1.3 What is the opportunity cost for a car manufacturer?

A car manufacturer has the raw materials, machinery and a factory that allows them to
produce two models of cars. One is a small 4-cylinder car the other is a larger 6-cylinder car.
With these resources the car manufacturer can produce all 4-cylinder cars or all 6-cylinder
cars or a combination of each. The car manufacturer will want to vary production from time
to time depending on changes in consumer demand. The manufacturer can use all the
resources to produce 5000 4-cylinder cars or 3200 6-cylinder cars or a combination of the
two as shown in the following production possibilities schedule.
4-cylinder cars
6-cylinder cars

5000
0

4000
800

3000
1600

2000
2200

1000
2700

0
3200

1. What is the opportunity cost of producing the first 1000 4-cylinder cars?
___________________________________________________________________
2. What is the opportunity cost of producing an additional 2000 4-cylinder cars?
___________________________________________________________________
3. What has happened to the opportunity cost? ___________________________
___________________________________________________________________
4. What does this tell the car manufacturer about the resource use?
___________________________________________________________________
___________________________________________________________________
5. What is the opportunity cost of 800 6-cylinder cars? _________________________

6. What is the opportunity cost of 1600 6-cylinder cars? ________________________

Plot the production possibilities schedule on the graph, with 4-cylinder cars and 6-cylinder
cars on the axises. Remember to draw the graph to scale.

7. What do you notice about the shape of the curve? Do you know why it is this shape?
___________________________________________________________________
________________________________________________________________________
______________________________________________________________
8. The car manufacturer wants to produce more 6-cylinder cars and more 4-cylinder cars, so
asks you what to do to achieve this. What alternatives would you suggest?
________________________________________________________________________
________________________________________________________________________
_________________________________________________________
9. The car manufacturer follows your recommendations. Draw in a new (hypothetical)
curve, on the diagram at the top of the page, showing where the production possibilities
function would now be.

Activity 1.4 What are the implications of choices by the government for the
nation?

Cartoon by Nicholson from The Australian www.nicholsoncartoons.com.au

The government can influence the level and types of production in the economy by their
policies and levels and direction of spending. If there is greater spending on consumer goods
then there tends to be higher living standards in the present, but if there is greater spending on
capital goods, this allows for higher levels of production and subsequently living standards in
the future. The Government in Australia is also responsible for providing public goods such
as education and health care along with social welfare for the needy. It is important to get the
right balance.
1. Education and health are sometimes seen as an investment. How could increased
funding on education or health be an investment? __________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________
2. What issues associated with government decision making and limited resources are
demonstrated
in
the
cartoon?______________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
______________________________________________________
3.

Suggest some other areas of government spending that could be considered as creating
capital goods. _______________________________________________
______________________________________________________________________
______________________________________________________________

4.

Would a cut in income tax lead to increased consumption expenditure or capital

expenditure? _______________________________________________________

Consider the following production possibilities frontier for a nation.

100
80
Consumer
Goods

60
40
20
0
10

20

30

40

50

60

Capital Goods

5.

What is the opportunity cost of 20 capital goods? ___________________________

6.

What is the opportunity cost of 60 capital goods? __________________________

7.

What is the opportunity cost of 60 consumer goods? _________________________

8.

If the nation is producing 50 consumer goods and 40 capital goods, what can you say
about its resource use and level of efficiency? _____________________
___________________________________________________________________

9.

If the nation is producing on its production possibilities frontier, what can you say about
its
level
of
unemployment?
___________________________________
___________________________________________________________________

10. The government wants to increase its future levels of economic growth. It is currently
producing 50 consumer goods and 40 capital goods. What recommendations would you
make
to
the
government
to
achieve
this?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________

11. Could any of your recommendations be politically undesirable? Why? ________

_______________________________________________________________________
_______________________________________________________________
12. Draw on the graph the likely effect of technological advancement. What other factors
could have similar effects?
_____________________________________
_______________________________________________________________________
_______________________________________________________________

Activity 1.5 - Group Work - Stranded on a deserted

island
The students are to break into groups of 4-5. They are to
assume that they are stranded on a deserted tropical island,
500 kms off the coast of Queensland. They have the task of
setting up an economic system on that island. They need to
decide the basic economic questions of:
What and how much to produce?
How to produce it?
Who will get it?
What will be done to increase efficiency and economic
growth?
It is important to develop a system that will sustain economic
development. The role of each person in the group should be
clearly explained. The group will have 20 minutes to plan
their economic system and each group will give a 3-5 minute
report. Follow up by asking the group members if they had
any problems coming to agreement. Why was this? Relate this
to the problems faced in the economy in deciding priorities or
what should be done.

Activity 1.6 - Australia's business cycle

Consider the following statistics on Australia's Gross Domestic Product, rates of growth
(percentage change).
Year
GDP
growth
%

1990
/91
-0.2

1992
/93
3.7

1994
/95
4.2

1996
/97
3.7

1998
/99
5.3

2000
/01
1.9

2002
/03
2.0

2004 2006
/05
/07
2.6
4.3

2008 2010
/09
/11
0.6
1.8

Source: Australian Bureau of Statistics

1. On the graph below, plot Australia's GDP growth rates from 1990/91 to 2010/11. Mark on
the graph the stages of the business cycle during this period.

2. When was Australia in a recession? ______________________________________

3. When do you think unemployment would have been at its highest level? _________
4. When do you think unemployment would have started to decline?
___________________________________________________________________
5. What have you noticed about Australia's business cycle from 1993-2011?
________________________________________________________________________
______________________________________________________________
6. What are the implications of this for Australia's unemployment rate and overall quality of
life?
_____________________________________________________
________________________________________________________________________
______________________________________________________________

Activity 1.7 The Circular Flow of Income

On the diagram above label the five sectors of the economy and the flows of money and
goods and services between the sectors.
Fill in the missing words from the passage below explaining the role of the circular flow
of income.
The five main sectors of the economy, _________________, ___________________,
___________________, ___________________________, ____________________,
transfer funds between each other in exchange for __________________ and
________________ . In a simple model, firms pay money to households in the form of
____________________________________________________. These payments are made
in return for the services of the factors of production, __________________,

_______________ and _________________________ . The households use this money to

purchase __________________ produced goods and services.
Not all of the income in the economy is spent on domestically produced goods and services.
Some is withdrawn from the ________________ flow. The main withdrawals or
________________
are
__________________,
_________________,
and
_________________. The economic symbols for these are S, T and M.
Demand in the economy does not only come from spending on domestically produced goods
but also through the injection of funds. The three main types of injections are
____________________, _______________________________ and ____________.
The economic symbols for these are _____, _____ and ______.
If injections are greater than withdrawals, more income will enter the circular flow and the
economy will ____________ and economic growth will occur. If injections are less than
withdrawals, the economy will _____________ and economic growth will ______________
and unemployment will _______________________. If injections equal withdrawals, the
economy will be ___________________.
Consider the following statistics for a hypothetical economy. All amounts are in billions of
dollars.
S = 80 T = 80 M = 60 I = 90 G = 90 X = 50
The budget result would be a __________________ of $_______________________.
Net exports would be a _________________of $____________________________.
The circular flow would _______________ as injections are ______________ than
withdrawals by an amount of $_________________________.
If there was a slowdown in the world economy and exports fell to 30, net exports would be a
_________________of $____________________________.
The circular flow would
_______________ as injections are ______________ than withdrawals by an amount of
$__________________________.

Activity 1.8 What is life like in our neighbouring countries in Asia?

The quality of life for the majority of Australians is quite high compared to other economies.
The 2011 Human Development Report (HDR) (based on 2009 data) ranks Australias quality
of life as the second highest in the world, after Norway. The main factors that give Australia
such a high ranking are our high life expectancy of 82 years and the amount of education we
receive, where Australia is ranked first in the world. Australias economic growth as
measured by Gross National Income (GNI) per capita (PPP) is ranked 18 th in the world. These
three criteria are used to measure quality of life as it is believed that they will reflect a
countrys overall standard of living. Education is seen as a source of productivity and growth
and a high quantity of education ranking is considered as an indicator of opportunity for the
people in a country. In some countries in the world such as Niger, in Africa, less than 30
percent of children finish primary school and the rate for female completions is below 15
percent. Life expectancy also reflects your living standards. Countries with low living
standards tend to have short life expectancies. For example the life expectancy in Congo and
Sierra Leone is only 48 years. A long life expectancy usually reflects good quantities and
quality of food, health and general living standards. The GNI per capita is measured in terms
of purchasing power parity (PPP). This tells you how much people living in a country can
buy with their money compared to someone in a different country. So a high GNI per capita
(PPP) means that the average persons ability to buy goods and services is high compared to
the average person in a country with a low GNI per capita (PPP). For example Australias
GNI per capita (PPP) was $35,000 US in 2009 compared to only $376 US in Zimbabwe,
$368 US in Burundi and $265 US in Liberia.
If we compare our quality of life with our Asian neighbours, we find that inhabitants of East
Asia and the Pacific have a life expectancy of 72 years and South Asia has a life expectancy
of 66 years. Income levels are also lower with an average GNI per capita (PPP) of $6466 US
in East Asia and the Pacific and $3435 US in South Asia. Literacy rates are also much lower
in these regions with 94% in East Asia and the Pacific and 63% in South Asia, compared to
100% in Australia. It is important to note that a person is measured as literate if they are over
15 years old and have completed year 6 at school.
Let us consider what life is like in one of the most populated and fastest growing economies
in Asia. India has a population of 1.2 billion people. India is currently the world's second
largest country. Demographers expect India's population to surpass the population of China,
currently the most populous country in the world, by 2030. At that time, India is expected to
have a population of more than 1.53 billion.
Since 1990 the Indian economy has been witnessing high economic growth, averaging over
4.5% per annum over the period. Indias economic growth rate has picked up to over 9%
since the worse of the Global Financial Crisis.
India's status as an emerging global superpower rests on narrow economic data drawn from
its booming middle class of 50 million people, less than 5% of the population. Beneath this
veneer, hundreds of millions face a daily struggle for essentials. The global challenge of the
Millennium Development Goals (MDGs) is disproportionately dependent on the fight against
poverty in India. In 2011, India ranked 134th on the United Nations' Human Development
Index, which takes into account social, health, and educational conditions in a country. Since
2006 India has only moved up one place on the HDI. The 2011 HDR states that 42% of

Indias population live on less than $1.25 US a day. The level of GNI per capita (PPP) is
$3468 US and 37% of the adult population of India are illiterate. Malnourishment is a serious
problem. 48% of the children in India are below the weight that they should be for their age.
This contributes to the average life expectancy of only 65 years. Women are even further
disadvantaged with only 27% of females having attended secondary school compared to 50%
for males. In addition the average income for a woman is less than one third that for a male.
Despite the low income levels, it has been estimated that over 50% of Indian workers work
longer than the legal maximum of a 48 hour week. Many work 12 hours a day and 6 days a
week.
One of the worst impacts of poverty is child labour in India. Although the Constitution of
India guarantees free and compulsory education to children between the age of 6 to 14 and
prohibits employment of children younger than 14 in any hazardous environment, child
labour is present in almost all sectors of the Indian economy. India is believed to have as
many as 23 million children up to age 14 in work. Anti-Slavery International has estimated
that one million children are engaged in Indias stone quarries (see photo).

Here is a story of Yeramma, an 11 year old.

I used to go to a government school but I had to leave because my sister got
ill. We took her to hospital but the doctor said we had to pay more money so
my parents bonded me for 1700 rupees (about $60). I was about seven then. I
worked unwinding the silk cocoons. I didnt like it but my parents made me
go. They said I couldnt go to school; I had to work.
At work I had to get up at 4 oclock in the morning. I only was allowed home
once a week. The rest of the time I lived at the factory. I slept with two or
three other children in the factory between the machines. The owner
provided rice for our food but he took it out of our wages. We had to cook the
rice ourselves. We worked twelve hours a day with one hours rest. If I made
a mistake, I would be beaten.

Source: http://www.plan-ed.org/learningcentre/childlabour/
1. What are some of the main measurements mentioned here as impacting on quality of
life in a nation?____________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
____________________________________________________
2. Why do you think Australia is classified as having a high quality of life?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_________________________________________________
3. How do the poorer nations in Africa and Asia compare to Australia in these areas?
___________________________________________________________________
___________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_______________________________________________
4. Do you think India has high living standards? Explain your answer.
________________________________________________________________________
________________________________________________________________________
_________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
____________________________________________________
5. What percentage of Indias population live on less than $1.25 a day? What percentage of
Australians do you think live on less than $1.25 a day? Do you think you could live on
$1.25
a
day?___________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
__________________________________________
6. How do wages and working conditions in India compare to those in Australia?
________________________________________________________________________
________________________________________________________________________

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_____________________________________
7. What is the official minimum working age in Australia and India? Discuss how effective
this is in each country. _________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
____________________________________________________
8. Consider the story of Yerammas life in India. What is meant by bonded? Why did
Yerammas parents bond him? _________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
____________________________________________________
9. How does Yerammas life compare to an average 11 year old in Australia? In what ways
are they different? Which life would you prefer to live? Why?
______________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_____________________________________
10. How would you compare the quality of life in Australia compared to that in India?
______________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
_____________________________________

Preliminary Topic 1 - An Introduction to Economics

Glossary of Terms
TERM
Business Cycle

Capital
Circular Flow of
Income
Economic Growth
Enterprise
Exports
Fair Work Australia
Government
Expenditure
Gross Domestic
Product
Gross National
Income
Imports
Industrial Relations
Injections

Investment

Labour
Land

DEFINITION
The name given to the sequence of business fluctuations which
occur over a period years in a regular cyclical pattern. The
phases of the cycle may be referred to as expansion (recovery),
boom, recession, and contraction (downswing or slump).
The produced means of production used in the production of
other goods and services, such as factories and machinery.
A theoretical model, based on certain assumptions, that
describes the transfer of money, goods, and services between
the major sectors of an economy.
A sustained increase in a nation's output over time, generally
measured as real Gross Domestic Product per annum.
The factor of production that an entrepreneur contributes to
production. It consists of innovation, organisation, and risk
taking.
Goods sold to other countries. It is also an injection into the
circular flow and has an economic symbol of X.
Fair Work Australia is the national workplace relations tribunal
that manages Australias industrial relations.
Money spent by the government. It is also an injection into the
circular flow and has an economic symbol of G.
Gross domestic product (GDP) refers to the market value of all
final goods and services produced within a country in a given
period of time. Y= C+I+G+(X-M).
Gross National Income (GNI) equals GDP plus income
receipts from the rest of the world minus income payments to
the rest of the world.
Goods produced overseas and bought for use in the Australian
Economy. It is a withdrawal from the circular flow and has an
economic symbol of M.
The relationship between employers and employees and how
they deal with each other.
Expenditure (such as government expenditure, business
investment or exports) that is not a direct function of income,
but is ' injected ' into the circular flow of income. It increases
the level of aggregate demand and expenditure in the
economy.
Investment is expenditure on goods not for current
consumption. It is used to make additions to the stock of
capital in the economy. It is also an injection into the circular
flow and has an economic symbol of I.
A factor of production, which is rewarded for mental or
manual effort, by wages, salaries, and professional payments.
The factor of production that consists of natural resources,
including mineral deposits, timber, and water.

TERM
Opportunity Cost
Production
Possibilities Frontier
Quality of Life
Resources
Savings

Scarcity
Taxation

Technological
Change
Wants
Welfare
Withdrawals

DEFINITION
The cost of the best alternative forgone or sacrificed.
A curve showing the maximum production that can be
achieved at a particular time given the existing resources and
technology.
The overall standard of living and wellbeing of the people.
Anything that can be used to produce goods and services.
Economic resources are made up of land (natural resources),
labour, capital and enterprise
The part of personal disposable income that is not used for the
current purchase of consumption goods and services. It is a
withdrawal from the circular flow and has an economic
symbol of S.
A shortage of something in relation to what is wanted.
The main source of government revenue and an instrument of
economic policy .The main functions of taxation are to release
resources from the private sector and make these available to
the public sector. It is a withdrawal from the circular flow and
has an economic symbol of T.
The introduction of new or improved products, new or
modified production processes or improvements in the
productivity of resources.
Peoples' desires for those goods and services which give them
satisfaction.
A government payment to the needy or worthy without them
providing anything in return, such as pensions, Austudy.
Deductions or leakages from the circular flow. They include
savings, net taxes, and imports.

Topic 1 - Multiple Choice Questions

1.

Which is the main sector in the Australian economy that determines what goods and
services will be produced?
(a)
(b)
(c)
(d)

2.

Which of the following would apply in a world without scarcity?

(a)
(b)
(c)

3.

Households
Firms
Banking
Government

It would still be necessary to choose among alternatives.

Opportunity costs would determine choices.
All goods would be free.
(d) The market would determine all prices.

Which of the following is an example of investment in economics?

(a)
(b)
(c)
(d)

A computer game
Savings in a bank account
The house you live in
The owner purchasing additional tables in a restaurant

Refer to the following production possibilities frontier to answer question 4 and 5.

A
Consumption
Goods
B

C
D

Capital Goods
4.

Which point indicates that there is inefficient use of resources?

(a)
(b)
(c)
(d)

5.

A
B
C
D

Which point is most likely to promote higher levels of economic growth in the future?

(a)
(b)
(c)
(d)

A
B
C
D

6. What is the economic return to the entrepreneur known as?

(a)
(b)
(c)
(d)
7.

What is the labour market?

(a)
(b)
(c)
(d)

8.

A market for goods

A market for services
A factor market
A financial market

What is the difference between consumer goods and capital goods?

(a)
(b)
(c)
(d)

9.

Wages
Rent
Interest
Profit

Consumer goods are produced by the private sector and capital goods by the
public sector.
Consumer goods can only be used once and capital goods can be used multiple
times.
Consumer goods satisfy wants in the present time and capital goods satisfy
future wants.
Consumer goods have increasing costs of production and capital goods have
decreasing costs of production.

Which of the following are the best indicators of the quality of life in a nation?
(a)
(b)
(c)
(d)

The average hours of work and wages paid per hour

The level of government spending on defence and education and the
unemployment rate
Land ownership, profits and the amount of savings
GNI, life expectancy and literacy rate

10. What effect will a rise in real GDP have on the rate of unemployment?
(a)

It is generally associated with a decline in the employment rate.

(b)
(c)
(d)
11.

Which of the following is an example of an injection into the circular flow of income?
(a)
(b)
(c)
(d)

12.

Taxation
Government Expenditure
Savings
Imports

At which stage of the business cycle are employment and the quality of life likely to
be improving for the majority of people in a country?
(a)
(b)
(c)
(d)

13.

It is generally associated with an increase in the unemployment rate.

It is generally associated with a decline in the unemployment rate.
It is not related to the unemployment rate.

Boom
Downswing
Contraction
Recession

Which of the following are the most important factors businesses consider when
making decisions?
(a) Costs, revenue, and production alternatives
(b) Industrial relations, participation in the political process and voting
(c) Spending, saving, and work
(d) Education, retirement and saving

14.

Which group is likely to spend the lowest percentage of their income on luxury
goods?
(a)
(b)
(c)
(d)

15.

What is production?
(a)
(b)
(c)
(d)

16.

Social welfare recipients

Employers
Professionals
Average wage earners

The transformation of inputs into outputs by firms.

The resources allocated by the government to industries.
The value of all goods and services produced in a country.
The provision of goods and services based on peoples' incomes.

In which of the following markets would interest be paid?

(a)

A market for goods

(b)
(c)
(d)

A market for services

A factor market
A financial market

Refer to the production possibility frontier below for a clothing manufacturer for question 17
and 18.
5000

Shirts
4000
3000
2000
1000
0
800

1600

2400

3200

Shorts
17.

What is the opportunity cost of producing 2000 shirts?

(a)
(b)
(c)
(d)

18.
(a)
(b)
(c)
(d)

100 shorts
600 shorts
1200 shorts
2400 shorts

If 1600 shorts are currently being produced by the firm, what would be the
opportunity cost of producing 800 more shorts?

100 shirts
700 shirts
1500 shirts
3000 shirts

The following information relates to questions 19 and 20.

S = 110, I = 100, G = 60, T = 50, X = 95, M = 80

19.

In which phase of the business cycle would this economy be?

(a)
(b)
(c)
(d)

20.

Expanding
Contracting
Equilibrium
Recession

What would be the budget outcome in this economy?

(a)
(b)
(c)
(d)

A surplus of 10
A balance budget
A deficit of 10
A deficit of 15