Free QCE Year 11 Economics Flashcard Review
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What is the basic economic problem?
Relative scarcity: wants are unlimited but the resources available to satisfy them are limited, so choices must be made.
Define opportunity cost.
The value of the next best alternative forgone when a choice is made.
What does ceteris paribus mean and why is it used?
'Other things being equal'. It holds all other influences constant so that a single relationship can be isolated and studied.
Name the four factors of production and their income rewards.
Land (rent), labour (wages), capital (interest), entrepreneurial ability (profit).
Is money a factor of production?
No. Capital means human-made productive goods such as machines and buildings. Money is only used to buy capital.
List the main assumptions of the PPC model.
Two goods only; fixed quantity and quality of resources; fixed technology; full and efficient employment of resources; resources not perfectly adaptable between uses.
What does a point inside the PPC show?
Underutilised resources: unemployment or inefficiency. Output of both goods could rise without any sacrifice.
What does a point outside the PPC show?
A currently unattainable combination, illustrating scarcity. It can only be reached if the curve shifts outward.
Why does the PPC bow outward (concave to the origin)?
Increasing opportunity cost: resources are not equally suited to both goods, so each extra unit of one good costs more of the other.
Give three events that shift the PPC outward and one that shifts it inward.
Outward: better education or health, higher labour productivity, new technology, more resources. Inward: war, famine or natural disaster destroying resources.
What are the three basic economic questions?
What and how much to produce? How to produce? For whom to produce?
Distinguish efficiency from equity.
Efficiency concerns how resources are used (no waste, least-cost methods). Equity concerns who owns the resources and how fairly output is distributed.
What are the three withdrawals in the five-sector circular flow model?
Saving (S), taxes (T) and imports (M).
What are the three injections in the five-sector circular flow model?
Investment (I), government expenditure (G) and exports (X).
State the aggregate demand equation.
AD = C + I + G + (X − M).
What is the equilibrium condition in the circular flow?
Total injections equal total withdrawals: I + G + X = S + T + M. The pairs do not need to balance individually.
What happens to GDP when injections exceed withdrawals?
Spending rises, businesses produce more and hire more, so GDP and national income grow.
Which two markets connect households and businesses?
The resources market (households sell land, labour, capital and enterprise for income) and the goods market (households buy output from businesses).
Difference between a closed and an open circular flow model?
A closed model has no overseas sector (households, businesses, financial and government only); an open model adds exports and imports.
Define GDP and name the body that publishes it.
The total market value of final goods and services produced in a country in a period, published quarterly by the Australian Bureau of Statistics (ABS).