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Economics Study Notes
TOPIC 1: INTRODUCTION TO ECONOMICS
The nature of economics
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The economic Problem
Types of economic systems
- Market Economy (e
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USA) – Private ownership of resources, Market Allocations of
Resources, Limited Government Intervention
- Mixed Market Economy (e
...
Australia) – Private Ownership of Resources, Market
Allocations of Resources, Substantial Government Intervention
- Planned Economy (e
...
North Korea) – Government ownership of Resources, Limited Role
of Markets, Government Planning of Resource Allocation
- Newly Industrialised Economy (e
...
Taiwan) – Private Ownership of Resources, Market
Allocation of Resources, Major Role of government is to Develop Strategic Industries
- Economy in Transition (e
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Poland) – Changing from government to private, increasing
role of market allocation, significant but declining role of government
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Decided by personal preferences
-Collective wants are the wants of the whole community
...
EQUATION Y=C+S
- Transitionary Motive of consumers to finance cash purchases of goods and services
- Speculative Motive of consumers is to invest in shares, bonds, real estate or cash to earn a
rate of return on the money invested

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- Precautionary Motive of consumers was to hold money balances for precautionary income
(saving, waiting for unforeseen expenses)
Businesses
- Total Revenue = Price x Quantity Sold
- Price = Costs + Mark Up (Profit Margin)
- Pricing, production, resource use ad industrial relations
Government
-Influencing the decisions of businesses and individuals
- Government allocates resources through their spending decisions for the provision of
infrastructure
- Federal government try to stabilise economic activity with economic policies
- Governments implement a system of taxation
- Protect individual consumer rights and increase competition in markets to raise efficiency and
lower prices

The operations of an economy
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Production of goods and services from resources
Goods are tangible meanwhile services are intangible
Factors of Production is any resources being but to produce goods or services
NATURAL RESOURCES = RENT
LABOUR = WAGES
CAPITAL = INTEREST
ENTERPRISE = PROFIT
2 broad types of economic systems : The market or Free Enterprise Economy and the Planned
Economy
Both types need to perform the function of production, distribution and exchange
...
Higher levels in tax revenue for the government therefore
spend more on infrastructure, community services and etc
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Employment
levels will be at their highest and shortages of labour may occur in some industries leading to
inflation

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Downswing phase = national output and income (Real GDP) levels begin to fall and
employment opportunities start to shrink as economic activity slows
- Recession = national income and output (Real GDP) are at their minimum
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- Comparing between Australia’s economy and Asia’s economy we use: economic growth and
the quality of life, employment and unemployment, distribution of income, environmental
sustainability and the role of the government
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Factors influencing individual consumer choice
- Consumer tastes and preferences
- Advertising
- Level of income
- The price of the good or service itself
- The price of substitute and complementary goods
Sources of Income
- consumer income mainly comes as a return for resources (land labour, capital and
enterprise)

The role of the business in the economy
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Goals of a firm
- Maximising Profits
- Meeting shareholders expectations
- increasing market share
- maximising growth
- Satisficing behaviour
- Specialisation – refers to the use of factors of production for only one purpose, rather
than being used in a variety of ways
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Leads
to lower costs, increases production and reduction of labour
- Access of the internet, consumers can compare prices between competing firms which
force businesses to reduce product prices
- Technology have left jobs redundant
- Technology had offered better quality products at a lower price
- Expanding the ranges of products
- Technology drive the globalisation market
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- Environment friendly products and practices are taken place because of consumer
demands make the environment more sustainable

Topic 3: Markets
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The Role of the Market
Demand and Supply determine prices in markets this is called the PRICE MECHANISM
Prices reflect the scarcity of goods and services, price helps allocate resources in the
production of goods and service and etc
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Factors affecting market demand include the price of the good or service itself, the price of
other goods and services, expected future process, changes in consumer tastes and
preference, level of income and the size of the population
Law of demand is as prices rises, quantity demanded falls and as price falls, quantity
demanded rises
On the demand curve a contraction in demand occurs when quantity demanded decreases
as a result in a rise in price
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A demand curve will shift to the right when increases in demand and will shift to the left if
decreases in demand
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Decreases in demand are caused from a fall in price substitutes, a rise in the price of
complements, a fall in income and etc
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Perfectly Inelastic Demand
PED co-efficient = 0

2
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Unitary Elastic Demand
PED=1

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Perfectly Elastic Demand
PED = ∞

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Goods having a relatively elastic demand include luxuries, goods having a large number
of substitutes, goods having a large number of alternate uses and etc
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- Factors affecting supply is the price of the good or service itself, the state of
technology, changes in the cost of factors of production, the quantity of the good
available and climatic and seasonal influences
- Law of the supply states that as prices rise, the quantity of goods that producers are
willing to offer for sale also rises
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- Contractions in supply occurs when a decrease in price causes the quantity supplied to
fall, expansion in supply occurs when an increase in price causes the quantity supplied
to rise
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- Increases in supply is caused from a fall in the price of other goods, an improvement in
technology, a fall in cost of factors of production and etc
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 Price Elasticity of Supply
 Types of price elasticity of supply
1
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Relatively Inelastic Supply
0<
<1

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Relatively Elastic Supply
PES co-efficient > 1

5
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- Merit goods are goods that are not produced in sufficient quantity by the private sector
because private individuals do not place sufficient value on those goods, Merit Goods
include education and health care
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These include the ocean
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- Derived demand means that the service of labour are demanded only because they are
needed for the firm to produce goods and service and make a profit
Demand for Labour
- The output of the firm
- productivity of labour
- cost of other inputs
The Supply of Labour
- Pay Levels
- Working Conditions
- Education, Skills and experience requirements
- The mobility of labour (occupational and geographical)
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Participation rate (% =

×

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The Australian Workforce
- Cyclical Unemployment is downturn in business cycle
- Structural Unemployment is mismatch skills demanded
- Long-term Unemployment is being unemployed for a period of 12 months or more
- Seasonal unemployment is seasonal natures of some jobs
- Hard-core unemployment is unemployable people because of disabilities
- Hidden unemployment is given up actively seeking work
- Underemployment is when individuals who would like to work more hours
- To be classified as unemployed, a person must be over the age of 15, without a job, or
stood down from a job without pay, but be actively seeking full-time or part-time work
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5 million)
Employment in the primary sector has started falling and has been stronger in the
service sector

Labour Market Outcomes
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Differences in incomes from work
- Creating a more equitable distribution of income with tax transfers, government
expenditure on welfare and etc
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5% at the
end of 2015 but has decreased to 5
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Topic 5: Financial Markets
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Types of financial markets
- The financial market allows the basic elements necessary for growth which is saving and
investment
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- Consumer credits allow consumers to purchase consumer goods and services in advance
of actual payments
- Credits is loans
- Housing Loans
- Business Loans
- Short- term money market brings together people and businesses with temporary
shortages or surpluses of funds
- Bonds are long-term securities for which lenders receive regular fixed payments from
the issuing institution, and receive the principal value of the debt at the end of the bond
period
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The main
reason for investors to purchase shares are to gain a stake in any company profits and to
make capital gains from increases in share prices
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Regulations of Financial Markets
- The reserve Bank of Australia is the central bank and has the responsibility for the
conduct of monetary policy and the maintenance of financial system stability
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- Australian Prudential Regulatory Authority (APRA) provides prudential regulation for all
authorised deposit taking institutions
- Australian Securities and Investment Commission (ASIC) regulates Australian companies
and financial markets with the aim of protecting investors and consumers and improving
the performance of the financial system
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Financial Aggregates
- M3 is the RBA definition of the money supply because it doesn’t have any information
on NBFI’s deposits
- M3 = Money base + Bank Deposits (M3 = Currency + Bank Deposits + Bank Deposits with
RBA)
- Money Base = Currency + Bank deposits with RBA
- Credit = Loans and Advances by financial institutions intermediaries + total bank bill
outstanding

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- Broad Money = M3 + NBFI deposits + NBFI deposits in Banks
Interest Rates
- Interest is the price paid for borrowed funds, and the nominal rate of interest is the
proportion of the value of funds borrowed that has to be paid in interest
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- Borrowing Rates – Is the rate of interest that financial institutions are prepared to offer
savers for the use of their money
- RBA implements monetary policy and there by determine the cash rate is domestic
Market Operators are conducted directly with financial institutions through their
exchange settlement accounts
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Topic 6: Government and the economy
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Government intervention in the economy
- Governments intervene in an economy to achieve a better allocation of resources, a
more equitable distribution of income and a greater economic stability
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- Direct Tax are those which are paid by the individual or business firm on which they are
levied
- Indirect tax are levied on individuals and business firms, but they can be passed on to
someone else
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- Government Business Enterprise play an important part in the role of governments in
the Australian economy
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Federal Budget
- The use of federal budget by the government is to achieve economic objectives such
as resource reallocation, the redistribution of income and economic stabilisation
known as fiscal policy
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- Structural refers to explicit changes in government spending or taxation policies
while cyclical refers to changes in government spending and /or revenue which are
caused by changes in the level of economic activity according to the business cycle
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- Contractionary fiscal policy is where government spending < taxation
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- Expansionary Fiscal Policy involves increased government spending where
Government spending > Taxation

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