Jacaranda Key Concepts in VCE Economics 1 Units 1 and 2, 12e learnON & Print

About This Resource ix

Acknowledgements xvi

Unit 1 Economic Decision-making 1

Area of Study 1 Thinking Like An Economist

1 Thinking like an economist 3

1.1 Overview 4

1.2 What is economics? 7

1.3 The basic economic problem of relative scarcity 11

1.4 Making economic decisions 16

1.5 Decision-making in different economic systems 25

1.6 Consumers and their behaviour as economic agents 38

1.7 Businesses and their behaviour as economic agents 44

1.8 Governments and their role as economic agents 48

1.9 Review 53

Area of Study 2 Decision-making in Markets

2 Decision-making in markets 69

2.1 Overview 70

2.2 The nature of perfectly competitive and other types of markets in an economy 72

2.3 BACKGROUND KNOWLEDGE How markets make key economic decisions — the big picture 81

2.4 The law of demand and movements along the demand curve 84

2.5 The law of supply and movements along the supply curve 87

2.6 Determining the market equilibrium price and equilibrium quantity 91

2.7 The effects of non-price factors on demand and supply — shifting the D–S curves and changing the equilibrium price and quantity 94

2.8 How changes in relative prices and profits affect Australia’s resource allocation 106

2.9 Researching a contemporary example of an Australian or global market 112

2.10 Review 131

Area of Study 3 Behavioural Economics

3 Behavioural economics 149

3.1 Overview 150

3.2 Insights of behavioural economics 152

3.3 The effectiveness of strategies used by government to influence consumer behaviour 162

3.4 The effectiveness of strategies used by businesses to influence consumer behaviour 171

3.5 Review 184

Unit 2  Economic Issues and Living Standards 197

Area of Study 1 Economic Activity

4 Economic activity 199

4.1 Overview 200

4.2 The nature and purpose of economic activity 202

4.3 The meaning of material and non-material living standards 205

4.4 The five-sector circular flow model 209

4.5 The business cycle 216

4.6 Types of economic indicators 218

4.7 The relationship between the business cycle and economic indicators 221

4.8 BACKGROUND KNOWLEDGE: Overview of factors that may affect Australia’s level of economic activity 223

4.9 Aggregate demand — its meaning, importance and factors affecting its level and economic activity 226

4.10 Aggregate supply — its meaning, importance and factors affecting its level and economic activity 234

4.11 The measurement of economic growth using changes in Gross Domestic Product (GDP) 240

4.12 The potential benefits of economic growth 244

4.13 The potential costs of economic growth 250

4.14 The limitations associated with using real GDP and real GDP per capita to measure changes in living standards 258

4.15 Alternative measures of economic activity and living standards 262

4.16 Review 269

Area of Study 2 Applied Economic Analysis of Local, National and International Economic Issues

5 The changing labour market 287

5.1 Overview 288

5.2 Definition and nature of the labour market 290

5.3 Measures of Australia’s changing labour market 294

5.4 The reasons why changes in Australia’s labour market are important 305

5.5 The economic factors influencing changes in Australia’s labour market 308

5.6 Different perspectives about the changing labour market 316

5.7 The Australian government’s economic responses to address changes in the labour market 317

5.8 Review 326

6 The economics of international trade 341

6.1 Overview 342

6.2 Definition, nature and direction of international trade 344

6.3 Measurement of Australia’s international transactions 347

6.4 The benefits of international trade for Australia and the global economy 350

6.5 The economic factors influencing international trade 355

6.6 Different perspectives about the issue of international trade 361

6.7 Economic responses and government policies involving international trade 368

6.8 Review 384

7 The distribution of income and wealth 395

7.1 Overview 396

7.2 Definition and nature of income and wealth 398

7.3 Measures of Australia’s distribution of income and wealth 402

7.4 The reasons why the distribution of income and wealth is an important issue 413

7.5 Economic factors influencing income and wealth inequality in Australia 419

7.6 Different perspectives about the distribution of income and wealth 428

7.7 The Australian government’s response to address inequality in the distribution of income and wealth 433

7.8 Review 442

8 Economics and the environment 455

8.1 Overview 456

8.2 Definition and general nature of environmental sustainability 458

8.3 Measures of the environmental sustainability of economic activity 461

8.4 The reasons why environmental sustainability is of importance to Australia and globally 474

8.5 The economic factors influencing the extent of environmental sustainability 478

8.6 Different perspectives about the issue of environmental sustainability 486

8.7 The responses by economic agents to improve environmental sustainability 491

8.8 Review 501

Appendix — VCE task words 515

Economics Dictionary 517

Index 577