Thinking critically:

Shortage of labour what would businesses and governments do?

Both businesses and governments can invest in more capital, so each employee is more efficient and
they rely less on labour.
The government could make migration more attractive so that more employees join from other
countries.
Advances in technology affect on future of economy?
Technological advancements would mean companies would invest more in capital, which would
reduce resources spent into labour. This would mean production would be more efficient but the job
market would decrease so people have less money to spend. This however would be useful for an
aging population such as Australia.
Changes in wages impact behaviour of businesses / individuals in economy + impact on
economic growth?
Increase: need to find more ways to make money – cost cutting / inflation = when there is a lot of
demand and not a lot of supply / companies move to another country where it is the cheapest to hire
labour
High: Businesses are more likely to invest in capital investment – eg. Europe / increased consumption
Low: More likely to invest in land or labour because labour costs are low
Export larger than import:
Selling more than you are buying = more injections than leakages
Drop in savings rate impact:
People are spending more = more disposable income = higher income however there is less money for
rainy days + lower investment = low job growth = low economic growth
Spending cuts and raise tax:
Spending cuts = less
Less disposable income = people are spending less
More spending = inflation / less spending = recession
Economy can spend on education or national defence. How would answers to
how much? = spend too much on national defence = less educated people to work for national defence
+ economy / spend too much on economy = at risk of attack and warfare
also depends on location = if close to aggressive countries better
growth of quaternary impact other sectors? Benefits and challenges
More money spent into capital compared to labour that means production is more efficient. This on
the other hand will also decrease the job market which means people will have less discretionary
income to spend. More investment into quaternary which takes a long time.

Describe the economic problem:

The economic problem is essentially scarcity. Society has unlimited wants and needs with limited
resources. Resources like land, labour, and capital are scarce so individuals, businesses and
governments must make choices about how to allocate them in the most effective way possible. By
doing so, we have an opportunity cost. Maximise satisfaction of unlimited wants with limited
resources.

Four factors of production – land, labour, capital, enterprise:

Resources required to produce goods and services in an economy

Term Definition Reward

Land Natural resources used in production - Rent – payment of land or other
for example fish, metals etc. natural resources for allowing their
use in the production process
Labour Human input that can be both physical Salary / Wages
or mental effort into the production of
the product in manual and intellectual
work
Capital All resources used to produce goods and Productivity
services / things used to make Efficiency
production more efficient (economics) - Interest
- like machines or factories.
Tools / equipment
Entrepreneurship Individuals that take risks to manage the Profit / loss for taking risk,
/ enterprise other factors of productions to provide a innovating and planning
service or good in a profitable business
– this involves planning
Using an example explain opportunity cost
Opportunity cost is essentially what you give up in a
scenario – the benefits that you lose when chosing one
alternative over another.
Fancy def: the benefits or potential gains of the
next best alternative that you lose when making
a decision or particular course of action.
For example, if a person decides to spend their money
on a vacation, the opportunity cost would be the
potential investments or savings they could have made
with that money. By choosing the vacation, they are
giving up the opportunity to earn interest or grow their
wealth through other financial decisions.
what you giveup
- It can be calculated using the formula= - always choose the lower
what you gain
opportunity cost because it is more efficient
- There are two types
- Constant opportunity cost = same amount of corn cotton lost and wheat lost
- Increasing opportunity cost = resources change as in graph
o Bc u have differences in needs of resources
- See example questions on onenote + in revision worksheets
- Country A can produce either 50 units of Apple or 100 units of Bicycle, while Country B can
produce either 90 units of Apple or 140 units of Bicycle. Which country has a comparative
advantage in the production of Bicycle?
 - Explain if Country A and Country B should trade with each other.
-

Circular flow of income model e.g. Explain what would be the effect on national
income if “the government decided to initiate spending cuts and raise taxation”

Describe what happens to the size of the income flow when:

A) leakages are larger than injections

B) injections are larger than leakages.

Explain what would be the effect on national income if:

a. households decided to save more
b. the government decided to initiate spending cuts and raise taxation.
c. the government of a trading partner decides to relax import tariffs.
Outline the three fundamental economic questions an economy has to answer – what
to produce, how to productive it and for whom to produce it
We raise these questions because of scarcity – as it forces us to make the choices on how to allocate
resources to meet needs and wants.
Economic system impacts how we answer questions – eg. Free market economy
- What to produce
o Goods and services to cater to our needs and wants
o What products are in demand and are of value to society
o what do we need most + what goods satisfy them
 goods will be produced / what quantities
- How to produce
o how to use resources to produce more goods and services to produce more output in
the most efficient way possible
 labour intensive techniques with more reliance on labour
 capital intensive production
- For whom to produce
o how goods and services are distributed
o social factors
 should everyone enjoy same amount of goods?
 Based on what people able to earn more + if certain goods available to some
people eg. Education / hospital

Define the primary, secondary, tertiary, quaternary sectors and use an example of each
Name of Primary Secondary Tertiary Quaternary Quinary
sector:

Definition first phase of Manufacturing Serviced Intellectual Government

: manufacturing and processing based activities decisions /
process / of raw activities charity services
extracts and materials Knowledge based necessary for
harvesting Provides and information the functioning
natural intangible intensive services of the economy
resources services
Sells the
goods

Features: Collecting / Converts raw Sells the Technological Makes

harvesting materials into goods / innovation decisions about
natural finished goods services what is going
resources Requires on in the
Uses specialised skills economy
someone
else's skills Essential
services

Examples Mining / Construction / Teachers / trying to make Health

of jobs farming / fishing wheat production
 / oil extrction manufacturing more effective Culture
Research /
development
Innovation

Define goods, services, needs, wants

Goods: tangible, physical products produced for consumption or use, such as food or clothing
Services: intangible activities provided by individual or businesses to fulfill specific needs or desires
such as tutor or healthcare
Needs: are essential requirements for survival and well-being such as food shelter and healthcare
Wants: desires beyond basic needs influenced by personal preferences and societal influences. Wants
are subjective and can include luxury items, entertainment or recreational activities.

Production Possibilities Curve (Production

Possibility Frontier)
- Graphical representation of trade offs and
opportunity costs when producing two
goods
- Shows maximum potential output given
resources constraints and technological
efficiency
- Can grow productivity
o Usually invest in capital – tools
o More employees – better
employees
o Immigration – more people coming to
work
o Reducing unemployment – women who
have children – more childcare
o Retrain workers – increase participation
- Movement outwards is known as economic
growth
o Economy has increased ability to be
productive of a nation
PEST analysis tool
Political Impact of political systems, - Political stability
government policies, regulations - Tax policies
and stability on businesses - Trade regulations
- Government attitude
Economic Overall economic conditions and - Economic growth
trends - Inflation rates
- Exchange rates
- Consumer spending
patterns
Social Cultural, demographic and social - Population
aspects that impact businesses demographics
- Consumer attitudes
- Social trends
- Cultural norms
Technological Impact of technology and
innovation on businesses

Companies use PEST to analyse the external factors that can impact business environment to identify
opportunities and threats. This can help make stratified decision making and stay ahead of market
changes.
Example: fast food chain using PEST analysis to adapt menu offerings = adding keto diet and salads
as more people try to be health conscious

Read doc with further explanation of each one if needed

Market research – qualitative vs quantitative data, primary vs secondary research and

the methods used
Qualitative data:
- descriptive and non-numerical = focusing on qualities / characteristics and subjective
attributes
- insight into peoples opinions, behaviours experiences and perceptions
- collected through methods like interviews, observations, focus groups or open ended survey
question
- data analysis
 - insight into peoples thought processes which can be used to identify patterns themes and
relationships
- expensive and time consuming to collect
- interviews
- reviews are used in modern times

Quantitative data:
- numerical and measurables on quantities, amounts of frequencies
- helps statistical analysis, generalization and identification of trends or patterns
- easy to collect
- methods like surveys with close ended questions, experiments or measurements
- inexpensive compared to qualitative data
- cheap because it is free
- examples: survey with rating scales

Closed vs open economy

Closed Economy When a country does not participate in international trade or
competition

Open Economy When a country participates in international trade or competition

Product life cycle and extension strategies used:

Stages a product through its introduction and decline
Introduction Product is launched into market
Low sales as consumer awareness is limiting
High expenses in marketing and promoting to create awareness
Customers are few (or none) but are innovative
High cost per customer
Growth Rapid sales growth = more proffit
Increase market acceptance
Consumer demand rise attracting competition
Focus on expanding market share, improving distribution and
improving brand loyalty
Cost per customer is reduced
Mature Plateau in sales growth
Market is saturated and competition intensifies
Aim to differentiate their product, maintain market share and
maximize profitability
Cost per customer is lowest
Decline Sales start to decline due to changing consumer preferences,
technological advancements or better alternatives
Companies can choose to discontinue product or find ways to
revitalize it by targeting niche markets
Less competitors
Cost per customer low
- product improvements method:
o target niche markets – niche segments or untapped markets where produce still holds
value
o price adjustments – pricing strategies
 o market expansion – joining a new geographic market to reach new markets
o rebranding / repositioning – rebranding or repositioning to cater to a diffe

Being able to elaborate on the following elements of the marketing mix

Place - distribution channels
How the products will be made available to customers and at what time or place. Involves distribution
channels, inventory management and retail or online presence.
Promotion – advertising, sales promotion, public relations, personal selling
Activities to communicate and promote the product to the target market. Includes advertising, public
relations, sales promotions, direct marketing, and digital marketing strategies
Product – tangible vs intangible
What a company sells to meet customer needs and profit that can be tangible or intangible. Includes
design, features and quality, packaging and branding
How is your product different – in a real or imagined way (promotion as well)
Price – cost plus pricing, competitive pricing, penetration pricing
Setting the right pricing strategy from the product. It also includes determining cost structure, profit
margins.
Cost based pricing:
adding a markup or profit margin to cost of production
Market based pricing:
Price is set based on prevailing market conditions and competitor prices
Value based pricing
Price based on perceived value of product or service to customer.
This strategy considers the product itself – and its benefits, features and uniqueness of
good/services which means businesses can charge more for products with a higher perceived
value
Penetration marketing
Price is set low to enter the market and gain market share
Skimming pricing
The price is set high To target early adopters or customers who are willing to pay premium
for a new or unique product
Psychological pricing
Price is based on consumer psychology and perception
Example: setting price to 9.99 instead of 10 to create perception of lower price

The benefits of trade

- economic growth
o expanding markets
o larger scale of production
- more connections = political benefits
o reduces hostility
 o leads to interdependence = less likely for war bc everyone needs each other
- allows each country to specialize in certain products / goods that they have a comparative
advantage = increased efficiency, resource allocation and productivity
o eg. Australia x Taiwan car manufacturers
o Taiwan get more jobs + lifts ppl out of poverty
o Australia gets cheaper cars bc people from Taiwan r paid less
- increased consumer choice
o wider range of goods and services
o better quality products
o newer products
- increase in competition
o less monopoly = cost decreases
o competitive prices = cheaper
o less opportunities for local / small businesses = job loses
- employment opportunities
o more jobs and employment opportunities
o exporting goods/services means businesses can expand operations and hire more
workers
o imports can support industries that rely of raw materials or components
- technological advancements
o exchange of technology, knowledge and innovation
o improved productivity and competition
- higher standards of living
o makes goods more affordable and accessible
o countries access resources / products that are scarce domestically = higher standards
for consumers

types of trade (never listed of stuff to memorise however therefore less notes)
- Autarky = self sufficiency
o Produce the products themselves
o Often is efficient for other people to make it
o Welfare gains
o Why focus on products we r bad at – work on something we r good at
- Free trade = all advantages of trade
o Free trade is bad for local businesses because there is more competition
o Interdependence = if one country fails then all other countries r affected which
impacts supply
- Protectionism = opposite of free trade
o Moving to autarky – at its very extreme is autarky
o Most countries will use forms of protectionism to stop trade
 Intellectual property rights – especially China because that’s what they were
doing
o Main done through tariff / non tariff barriers
 Basically make it more expensive to import something
 Price of local product more competitive
o Eg. US is using protectionism to stop information trade from the US to China
 China is 15/20 years behind in chip manufacturing
 o Strategies linked to interdependence
 Food / military has strategic importance
 Important because if one country derails then all other countries will
 Food is a need and they
 Developing countries generally have a stockpile of 12 – 18 months
 Steel / chips are used everywhere
 Australia will never leave coal in case sustainable sources of pour
o Protectionism sometimes leads to a trade war = larger tariffs
 Larger and larger tariffs
 Using tariffs to inflict economic pain on other countries
 How to win?
 Which country imports more – more vulnerable
 Sometimes impacts other c
 Impacts poorer consumers
 More money to spend on necessities – cost go up
 Higher tariffs on things for more poor people
 Consumers have all the negatives
 Lower quality
 More prices

Absolute advantage
Ability for a country, individual or company to produce a good/service in greater quality for the same
cost or same quality at a lower cost (more efficiently with lower cost). The country specialize in that
good, and then can export it more because they can produce it more efficiently.
Definition given by teacher = Absolute advantage refers to the ability of a country, individual,
or company to produce a good or service more efficiently or at a lower cost than others,
producing at a higher volume. It is based on absolute productivity levels.
Countries gain from trade by trading goods/services they have an absolute advantage over, gaining
large profits that can be used to purchase products they are less efficient in – leads to interdependence.
Absolute advantage is why countries trade with each other because each country has advantages in –
leads to benefits for both countries. (can sub countries with businesses / individuals etc. )
Because of superior availability in certain goods
Climate / quality of land / natural resources
Differences in labour / capital / technology / entrepreneurship

Comparative advantage
Ability to produce a good / service with a lower opportunity cost than others and is productively more
efficient than another (better skills). Considers opportunity cost of producing one good in terms of
sacrificing production of another good.
Countries should specialise in and export products that they have the best comparative advantage in
Country with lowest opportunity cost is the most efficient.
Comparative advantage differs from one country to another – eg. Australia is better at farming sugar
compared to US but not compared to India
World output and consumption are maximised when countries specialise in producing goods for
which they have a comparative advantage, and trading them for goods for which they do not have is a
comparative advantage
Economies of scale – purchasing economies and marketing economies
Cost advantages when production size increases and becomes more efficient, cost of production
decreases which means a firm can profit more
Reason why smaller businesses are more expensive = because cost per unit depends on how much a
company produces, therefore larger companies can create cheaper prices because they spread their
cost amongst a larger amount of goods.
Economies of scale lead to a lower per unit cost (less expensive to produce) because of
1) specialization of labour / more capital = more production volumes
2) bulk orders from suppliers / larger advertising buys or lower costs of capital
3) spreading internal functions across more units produced / sold

Internal economies of scale = when company cuts costs internally therefore they are unique to each
firm. Can be a result of sheer size of company or decisions from firms management. Larger
companies are more likely to achieve internal economies of scale -
Technical: large-scale machines or production processes that increase productivity
Purchasing: discounts on cost due to purchasing in bulk
Managerial: employing specialists to oversee and improve different parts of the production
process
Risk-Bearing: spreading risks out across multiple investors
Financial: higher creditworthiness, which increases access to capital and more favourable
interest rates
Marketing: more advertising power spread out across a larger market, as well as a position in
the market to negotiate
External economies of scale = because of external factors or factors that affect an entire industry. This
means no one company controls it on its own.
Happen when there is anything that cuts costs to many companies in a specific industries
Highly skilled labour pool / subsidies / tax reductions / partnerships / joint ventures
general glossary
Term Definition
Circular Flow of A model of the economy that shows the transactions between
Income economic agents as the flow of money or goods/services
Closed Economy When a country does not participate in international trade or
competition
Open Economy When a country participates in international trade or competition
Injections When money is redirected back into the economy including
government spending, and exports
Leakages When money is lost in the economy
Taxes When money is given to the government from households for its
transactions
Savings Saving money in a bank
Consumption Use of goods and services by households
Government Use of goods and services by government
Spending
Investment Putting money into somewhere else, generally a project or
business to generate positive returns - generally money
Exports Selling goods or services overseas
Imports Goods or services that are sent from overseas to be sold here