TERM 1: The Economic and Business Environment
WEEK 1: Nature of the economy
Definitions economy: The system for deciding how scarce resources is used so that goods
and services can be produced and consumed
economics: The study of how society allocated limited resources to meet their
needs and wants
budget deficit: When gov spending exceeds taxation revenue
budget surplus: When gov spending is less than taxation
trade deficit: Value of imports excess value of exports
trade surplus: When exports value exceeds import (better than trade deficit
for economy)
market: Situation whereby buyers and sellers of goods and services interact
for the purposes of exchange
Economic Problem -Problem is revolved around idea of opportunity cost. If you satisfy one want,
you must give up another. In addition, due to the fact that resources are
limited, people need to decide what to produce
scarcity: Human wants, and need are unlimited but there is limited amounts
of resources to provide for these wants and needs
Economic land: Include any natural resource used to produce goods and services
Resources / Factors
of production labour: Effort people contribute to the production of goods and services
capital: Machinery, tools and buildings humans use to produce goods and
services
enterprise: Combine the other factors of production to earn a profit
Types of Economic centrally planned: Resources are owned and allocated by the government.
Systems Government “command” how resources are used and what is produced, and
way production is allocated.
- Associated with communism Advocated state ownership of land and
capital
- e.g. Venezuela, North Korea
- More equal in theory, less equality in real life
mixed market: Economic questions answered using combination of market
forced and central planning / government intervention.
- What, how goods and produced are decided by profit seeking firms
- Government intervenes to provide public goods and help fund merit goods
(healthcare)
- e.g. Australia and Norway
- Incentive for entrepreneurship as there is no cap on money and earnings
pure market: Free operation of market forces solves all economic questions
, - What and how to produce and who receives goods and services determined
by price in the market and individual’s income
- Little to none government intervention
- e.g. America and Japan
- Benefits economic growth Gov can’t stop how much is made
subsistence: Most basic form of economic system that is rarely in use today
- Originally, all economies would have been subsistence in nature
- Goods and services were produced to satisfy the survival needs of
individuals, families
- Hunter gatherers lifestyle is subsistence economy
economic questions systems must address:
1. What to produce?
2. How much to produce?
3. How to produce?
4. How to allocate production?
WEEK 2: The Five Sector Circular Flow of Income Model
Sectors and Flows
Roles of each Sector household: Refers to individuals and the way they earn and dispose their
income in order to satisfy their wants, provide land, labour and enterprise to
firms
firms/businesses: Produce and distribute goods and services in the hope that
they make a profit. Firms sell everything they make to households.
financial: Sector is made up of businesses that borrow or lend money
WEEK 1: Nature of the economy
Definitions economy: The system for deciding how scarce resources is used so that goods
and services can be produced and consumed
economics: The study of how society allocated limited resources to meet their
needs and wants
budget deficit: When gov spending exceeds taxation revenue
budget surplus: When gov spending is less than taxation
trade deficit: Value of imports excess value of exports
trade surplus: When exports value exceeds import (better than trade deficit
for economy)
market: Situation whereby buyers and sellers of goods and services interact
for the purposes of exchange
Economic Problem -Problem is revolved around idea of opportunity cost. If you satisfy one want,
you must give up another. In addition, due to the fact that resources are
limited, people need to decide what to produce
scarcity: Human wants, and need are unlimited but there is limited amounts
of resources to provide for these wants and needs
Economic land: Include any natural resource used to produce goods and services
Resources / Factors
of production labour: Effort people contribute to the production of goods and services
capital: Machinery, tools and buildings humans use to produce goods and
services
enterprise: Combine the other factors of production to earn a profit
Types of Economic centrally planned: Resources are owned and allocated by the government.
Systems Government “command” how resources are used and what is produced, and
way production is allocated.
- Associated with communism Advocated state ownership of land and
capital
- e.g. Venezuela, North Korea
- More equal in theory, less equality in real life
mixed market: Economic questions answered using combination of market
forced and central planning / government intervention.
- What, how goods and produced are decided by profit seeking firms
- Government intervenes to provide public goods and help fund merit goods
(healthcare)
- e.g. Australia and Norway
- Incentive for entrepreneurship as there is no cap on money and earnings
pure market: Free operation of market forces solves all economic questions
, - What and how to produce and who receives goods and services determined
by price in the market and individual’s income
- Little to none government intervention
- e.g. America and Japan
- Benefits economic growth Gov can’t stop how much is made
subsistence: Most basic form of economic system that is rarely in use today
- Originally, all economies would have been subsistence in nature
- Goods and services were produced to satisfy the survival needs of
individuals, families
- Hunter gatherers lifestyle is subsistence economy
economic questions systems must address:
1. What to produce?
2. How much to produce?
3. How to produce?
4. How to allocate production?
WEEK 2: The Five Sector Circular Flow of Income Model
Sectors and Flows
Roles of each Sector household: Refers to individuals and the way they earn and dispose their
income in order to satisfy their wants, provide land, labour and enterprise to
firms
firms/businesses: Produce and distribute goods and services in the hope that
they make a profit. Firms sell everything they make to households.
financial: Sector is made up of businesses that borrow or lend money
