10ECB WK1

10ECB WK1

Objectives of the Australian economy - Satisfying needs and wants efficiently. 

As individuals and as a society, our needs and wants will always be greater than our means of satisfying all those needs and wants. This is the fundamental problem facing any economy, no matter how wealthy it is. Economists refer to this as the problem of relative scarcity.

This problem cannot be completely solved or eliminated, but its impact can be minimised by ensuring the most efficient use of resources. The objectives of the Australian economy are to satisfy the greatest range of needs and wants by efficiently producing as many goods and services as possible. This is accomplished by addressing three key economic questions.

Multiple Choice

Who are the four participants in the economy?

• consumers, businesses, government and overseas businesses

• consumers, businesses, government and the defence force

• consumers, businesses, banks, overseas businesses

• consumers, businesses, government, financial intermediaries.

Key economic questions

All the participants in the Australian economy — consumers, producers, financial intermediaries and the government — make choices to minimise the impact of the relative scarcity of resources and to maximise the range of needs and wants that can be satisfied. Put together, these choices determine the answers to the following questions:

1. What to produce? What goods and services should be produced, and in what quantities?

2. How to produce? What methods should be used to produce those goods and services?

3. For whom to produce? To whom should those goods and services be distributed?

Open Ended

In 50 words or less, explain relative scarcity.

What to produce?

How does our economic system help producers decide what goods and services to supply, and in what quantities to supply them? This is determined largely by trial and error.

A producer may make certain goods or services available to consumers in the expectation that these will satisfy the needs and wants of those consumers. If the goods or services fail to sell, the producer will probably go out of business.

When a business is successful in selling to consumers, other businesses will attempt to enter the same market, making or selling those goods or services that consumers have shown they wish to buy.

Fill in the Blank

A ________ may make certain goods or services available to _________ in the expectation that these will satisfy the needs and wants of those consumers. If the goods or services fail to sell, the producer will probably go out of business.

In our economy, markets largely determine which businesses are likely to be successful. Factors that can influence markets include:

Established habits and experience.

 Producers know from people’s existing behaviour that there will always be a demand for certain types of goods or services. Families need to buy food on a regular basis, so a supermarket in a new suburb may well be successful.

Changing tastes and preferences.

 Changing consumer tastes and preferences influence what is produced, and in what quantities. An example of this is the market for Australian-made cars. For many years, family sedans and wagons such as the Holden and Falcon were Australia’s best selling cars. Car manufacturing was so successful that Toyota and other car manufacturers also set up factories in Australia. Over time, consumers’ preferences changed and smaller imported cars became more popular. As a result, car manufacturing in Australia ceased in 2017.

In our economy, markets largely determine which businesses are likely to be successful. Factors that can influence markets include:

Marketing and advertising.

 Any business introducing a new product or service into the market needs to ensure that consumers are aware of its availability. Advertising is designed to inform consumers of new products and to convince them to buy a particular product instead of an alternative. Online advertising through search engines such as Google has increased dramatically, and an online presence is essential for most businesses these days.

Technological change.

 As a society, we have become very enthusiastic about new technology. Whenever a new model iPhone is released into the marketplace, consumers queue outside their nearest Apple store to be the first to buy it. Consumers monitor new developments in technology, and many will quickly replace outdated products with newer models. Producers can be quite confident that improvements in technology will quickly attract buyers to new goods and services.

Multiple Select

What are the factors that influence markets changing?

• The age of people

• Habits and experience

• Changing preferences

• Wages and debts

Open Ended

In 50 words or less, identify how markets can help determine what to produce within the economy.

How to produce?

The production of goods and services involves a combination of resources — land (raw materials), labour and capital (equipment).

 A factory producing frozen vegetables will be set up with different types of capital equipment. These include machines that cook the vegetables, and others that pack and seal them in plastic packaging before freezing them.

The same factory will employ workers to control those machines and perhaps carry out other tasks such as managing the process. The raw materials are the vegetables that are processed during production, as well as the materials used in packaging.

Fill in the Blank

The production of goods and services involves a combination of resources — land (___ _________), labour and capital (_________).

How to produce?

Competition from rival producers encourages businesses to keep their costs as low as possible. If new equipment becomes available that works more efficiently, it may be worthwhile for a business to change its methods of production to take advantage of the new equipment.

Can you think of any examples of this?

How to produce?

The use of robotics-based equipment has increased dramatically in factory production. In most cases it enables the factory to employ fewer workers, reducing wage costs and allowing the prices of products to be kept at a level where they can compete in the marketplace. The use of self-service checkouts in supermarkets is designed to have a similar effect.

Open Ended

How to produce means?

For whom to produce?

Our economic system has to determine how to distribute goods and services to consumers. It makes use of markets and prices as a means of doing this.

As we have seen, the basic model of the circular flow of income involves the household sector exchanging labour with the business sector for money in the form of wages. Those wages are then used to purchase goods and services from the business sector.

Goods and services are distributed to those who are willing and able to pay the prices asked for them, although governments can intervene in these markets to ensure that the most disadvantaged in our society are able to have some of their needs and wants satisfied.

Open Ended

How do governments intervene in these markets to ensure that the most disadvantaged in society are able to have some of their needs and wants satisfied?

For whom to produce?

The quantities of goods and services that can be purchased by any household will depend on the levels of wages received.

If wages across the economy are relatively low compared to prices, relatively large numbers of people may be living in poverty because they cannot afford to buy necessities. If prices are relatively low compared to wages, households will be able to buy more goods and services and fewer people will live in poverty.

The choices and decisions made by businesses about the wages they pay and the prices they charge affect the whole economy and determine to whom goods are distributed.

Multiple Choice

What are the 3 key economic questions?

• What to produce, How to produce, For how to produce?

• What to produce, How to produce, For whom to produce?

• What to produce, Who to produce, For what to produce?

• What to produce, How to distribute, For whom to produce?

Opportunity Cost

Whenever we make a choice between two or more alternatives, we may gain the benefits of the alternative we choose but we lose any benefits that may have come from choosing differently.

Consider the following scenario: You are hungry and thirsty on your way home from school, and have only $7 to spend. A burger is going to cost $5, a drink $3 and a small serving of fries $3. If you choose the burger, you will have to give up the fries and drink; if you choose the fries and drink, you miss out on the burger, which will satisfy your hunger more. To an economist, the real cost of choosing the burger is not the $5 you spend, but missing out on the opportunity of enjoying the fries and drink.

In the same way, the real cost of choosing the drink and fries is the opportunity to enjoy the burger.

This is known as opportunity cost. When choices are made in the economy — regardless of whether they relate to what goods and services to produce, how to produce them, or to whom to distribute these goods and services — it is important to weigh up the opportunities that are lost before making a final choice.

Selecting one of the businesses from below, give an example of opportunity cost that the business owner(s) might face.

(a) Motor vehicle manufacturer

(b) Fruit and vegetable shop

(c) House construction business

(d) Pizza shop

(e) Electricity supplier

Multiple Choice

What lesson do we have next?

• Period 1

• Period 2

• Period 3

• Period 4

• Period 5