1. The Australian Economy
Introduction to economics

2. Questions to consider 1. What is economics?
3.Who is effected by economics?
4. Why is economics important?
1. What is economics?
2. What do we mean by economise?

3. 1. What is economics?
Economics is a term that is generally used to refer to how a nation tries to satisfy people’s needs (such as clean water, food, shelter and health care) and wants (non-essential goods and services) with limited resources.

4. Satisfaction of Individual Human ‘wants’
Q: How do people satisfy their material wants?

5. Satisfaction of collective Society ‘wants’
Q: How does Society satisfy its needs & wants?

6. INSATIABLE WANTS + LIMITED RESOURCES =
THE NEED TO ECONOMISE

7. More More More! Can people’s wants be satisfied in the long run?
Gmeee,
Gmeee
Can people’s wants be satisfied in the long run?
Can we have everything we want? Why not?

8. 2. What do we mean by Economise
Best case scenario:
Maximise our satisfaction with our limited resources;
i.e. choose how to use our resources to our greatest advantage
ECONOMISE

9. Concept of scarcity How to best use limited resources (SUPPLY) VS
How to best satisfy the unlimited wants of society (DEMAND)

10. SUPPLY: How to best use limited resources
Natural resources – Land
Human resources – Labour
Capital resources – Machinery & buildings
Enterprise resources – Management

11. DEMAND: How to best satisfy the unlimited wants of society
Households - To Maximise their satisfaction through the consumption of goods and services
Businesses - To maximize profits. Keeping production cost low can help to maximise profits
Governments - To lower unemployment, keep prices stable (i.e. low INFLATION); increase economic growth; raise living standards; regulate income distribution; keep Australia economically viable.

12. INSAIABLE WANTS & NEEDS
Scarcity & choice
Scarcity of resources forces the need for individuals and society to make choices
SUPPLY
DEMAND
INSAIABLE WANTS & NEEDS
LIMITED RESOURCES
Satisfying Wants & Needs

13. Choice & Opportunity Cost
Choice Results in opportunity cost
Opportunity cost is the cost of undertaking one economic activity instead of another that is the best alternative.
The aim of economising is to minimise opportunity cost; that is, they put their resources to the best use possible.

14. The economic problem?
"Economic problems arise as the individual or the community has to make the most efficient use of its limited resources and is confronted with the problem of choice. Economics is accordingly concerned with the arrangements that are made to most efficiently use of scarce resources"

15. 3. Who is Effected by Economics? Economics &You
All people are touched by economic decisions on multiple occasions every day.
Economic decisions taken by individuals, groups, businesses and governments have effects on the welfare of nations and regions; today these effects are increasingly global in their impact.

16. Society’s Economic Challenge
A major challenge facing societies in the twenty-first century is how to balance further growth of living standards and improvement in the distribution of the world’s income and wealth, with protection of the environment and the maintenance of liberal democratic government.
SUPPLY
DEMAND
INSAIABLE WANTS & NEEDS
LIMITED RESOURCES
Satisfying Wants & Needs

17. Taking Responsibility
As a citizen, everyone has to make decisions on a wide variety of economic problems of personal, local, state, national and international significance.

18. 4. Why is Economics Important?
The Need for Economic Understanding!
The extensive media coverage of economic issues, problems and events has, in recent years, highlighted the need for increased community awareness of the economic environment in which we live and the economic forces that act upon our lives.

19. The Benefits of Economic Literacy
By studying Economics at school you have the opportunity to take on this challenge & manage resource scarcity and address the requirements for human survival and economic sustainability.
The study of Economics is a huge asset to a student’s education as it develops life long learning skills crucial to their success in the real world.

20. Core Economic knowledge
to understand how goods and services are produced and distributed
to recognize themselves as producers and consumers of goods and services
to analyse the interaction of economic policy and economic activity and how decisions on these matters impact on individuals and broader society
make rational economic choices both in their own lives and in their participation in policy decisions as citizens of a city, state, nation, and the world
interpret local, national and global economic events and their likely impact on the wellbeing of themselves and others
appreciate the interdependency of individuals and nations for having needs met and the disparities between individuals and nations

21. Advantages
Students who develop their economic literacy are in a better position to:
act rationally and ethically when making economic and personal financial decisions
influence others to do likewise
appreciate the complexity of economic decision-making and to better understand the economic decisions made by others
manage their personal affairs better
be more effective and productive members of society as they are capable of making reasonable judgments on public policy issues that have a bearing on their personal prospects and those of the nation

22. Career Pathways
Career pathways for students intending to pursue a career in this area include:
Economist
Statistician
Commerce Teacher
Banking
Small Business Owner
Stock market
Investment advice
Politics
Government and international trade

23. Careers Foundations Economics provides a foundation for careers in:
Accounting
Business
Government and politics
Finance and insurance
Information technology
Law
Management
Marketing and tourism
Public policy
Teaching and education

24. Markets & Economics
The study of economics involves looking at the nature of markets.
Through a market economic view we look at how:
goods and services are produced and consumed
income is earned and spent on a national basis
It uses price signals (Price Mechanism) to indicate what products consumers do or do not want to see produced

25. Introduction to Markets
A market does NOT have to be a physical place like a shop, it can also be a virtual one, like the money market.
The market place consists of all those who have items/services for sale and all those who are interested in buying those items/services
Many businesses have global markets because of the developments in technology

26. Introduction to Markets
The range of markets:
Organised markets – commodities e.g. rubber, oil, sugar, wheat, gold, copper, etc.
Financial markets – stocks, shares, currencies, financial instruments
Goods markets – the supply and demand of goods and services in general, food, clothing, leisure, houses, cars, etc.
Factor markets – the supply and demand of factors of production – land, labour and capital

27. What is a market?
A market – is any place or process that brings together buyers and sellers with a view to agreeing a price
The basis of how an economy operates – through production and subsequent exchange
A market is - what our economy uses to answer the three basic economic questions
1. What to produce?
2. How to produce?
3. For whom to produce?

28. The Economic Problem
1. What goods and services should an economy produce? – should the emphasis be on agriculture, manufacturing or services, should it be on sport and leisure or housing?
2. How should goods and services be produced? – labour intensive, land intensive, capital intensive? Efficiency/Management?
3. Who should get the goods and services produced? – even distribution? more for the rich? for those who work hard?
This is the traditional three key questions any economic system has to answer. Many students would have difficulty defining what an ‘economy’ actually is! It is useful at this stage to clear this up – a system for the production and exchange of goods and services to satisfy the wants and needs of the population. This is open ended enough to be able to incorporate all manner of economic systems from a barter system that still exists in remote parts of the world to sophisticated economic systems such as the UK and US! The questions and the examples raised can be used for discussion – get the students to express their views at this stage and be as controversial as possible to stimulate discussion and involvement!

29. Production Possibility Frontiers
If it devotes all resources to capital goods it could produce a maximum of Ym.
If it devotes all its resources to consumer goods it could produce a maximum of Xm
If the country is at point A on the PPF It can produce the combination of Yo capital goods and Xo consumer goods
Assume a country can produce two types of goods with its resources – capital goods and consumer goods
Capital Goods
If it reallocates its resources (moving round the PPF from A to B) it can produce more consumer goods but only at the expense of fewer capital goods. The opportunity cost of producing an extra Xo – X1 consumer goods is Yo – Y1 capital goods. Ym A Yo
These slides introduce the diagrams and then have animation to show how points on the PPF relate to different resource use and allocation. Moving from point A to point B involves sacrificing some capital goods to gain more consumer goods and thus demonstrates the opportunity cost involved. Students doing history can be reminded about the resource allocation decisions taken by Stalin during the 1930s and the subsequent decisions by successive Soviet premiers since the war about what resources are important for a nation like the USSR! (you might of course have to explain a little bit about what the USSR was!) B Y1 Xo X1 Xm
Consumer Goods

30. .B Production Possibility Frontiers C A
It can only produce at points outside the PPF if it finds a way of expanding its resources or improves the productivity of those resources it already has. This will push the PPF further outwards.
Production inside the PPF – e.g. point B means the country is not using all its resources
Capital Goods C Y1 A .B Yo
The next slide allows the lecturer to demonstrate what happens when resources are not used efficiently and production takes place within the PPF. It then allows the expansion of the PPF and can be used to illustrate the issue of economic growth and where opportunity cost does not exist if the economy moves from point A to point C (in a simple context of course – there is always some form of sacrifice of using resources!). Xo X1
Consumer Goods

31. Price Mechanism
Price mechanism is a system where by producer supply and consumer demand interact in the marketplace to set the prices for goods and services
Consumer demand is the and of the buyer to pay the actual asking price for the good
Supply is the quantity of that commodity that will be provided by the buyer at a particular price
willingness
ability

32. Prices
Prices help consumers decide which of their wants is the most important and a desire for profit stimulates efficient resources use by each supplier and helps to smooth out imbalance over in oversupply and undersupply
The price mechanism also plays a role in the distribution of wealth, through the generation profits wages for successful suppliers in markets where there is demand

33. Controlling The Market Economy
DEMAND
DEMAND
SUPPLY
SUPPLY
– reflects the degree of value consumers place on items – price and satisfaction gained from purchase (utility)
– the amount consumers desire to purchase at various alternative prices
– reflects the cost of the resources used in production and the returns/profits required
– the amount producers are willing to offer for sale at various prices

34. Market demand – consists of the sum of all individual demand in the market
Represented by a demand curve
At higher prices, consumers generally willing to purchase less than at lower prices
*RULE* Demand curve – negative slope, downward sloping from left to right

35. Price of complementary products Price of the product itself
The Law of demand
The demand curve slopes downwards from left to right indicating a negative relationship between demand and price. As price rises, this discourages buyers to buy more whereas a fall in price would lead to the quantity demanded to ______
Factors of Demand
Price of substitutes
Price of complementary products
Income
Expectations
Price of the product itself
Preferences
Factor affecting Demand

36. Changes in the DEMAND CURVE
Two (2) types of physical changes:
1. Movement along the curve is caused by ONLY a:
change in price of the product
2. Shift in the curve is caused by a change in any of the factors other than the price of that particular product such as:
Level of disposable income
Preferences and tastes
Change in the Price of a Complementary product
Change in the Price of a Substitute product
Consumer’s expectations
Size of the market
These factors cause the demand curve to shift either:
Left (Less demanded at each price) D2
Right (More demanded at each price) D1
see example on graph

37. 1. Movement along the DEMAND curve
Movement along the DEMAND curve is caused by a change in the:
Price of the product itself

38. The Demand Curve - For Lollipops
PRICE CHANGE IN ACTION
The demand curve slopes downwards from left to right (a negative slope) indicating the relationship between price and the quantity demanded. Demand will be higher at lower prices than at higher prices.
As price falls, demand rises. P then D
As price rises, demand falls. When P then D
Price ($)
$10
The starting price of Lollipops was $10 $5
The price of Lollipop was then decreased to $5
Demand
100
150
At $5 the quantity demanded is increased to ???
Quantity (000s)
At $10 the quantity demanded is 100
150

39. Exercise task
Draw the same demand curve for lollipops as the last slide. Label it as (D)
Label the two axis.
The initial price is $10 and the quantity demanded is 100. Mark this as point (a)
There is a change in price to $15. Does the quantity demanded rise or fall? Approximate the quantity demanded.

40. 2. Shift of the demand curve
Shifts of the demand curve are caused by the following factors:
Level of disposable income
Preferences and tastes
Change in the Price of a Complementary product
Change in the Price of a Substitute product
Consumer’s expectations
Size of the market

41. The Demand Curve 2
Changes in any of the factors other than price causes the demand curve to shift either:
Left (Less demanded at each price) or
Right (More demanded at each price)

42. The Shift Of Demand Curve – Hamburger
SHIFT OF DEMAND CURVE IN ACTION
Changes in any of the factors affecting demand other than price cause the entire demand curve to shift to the left (less demanded at each price) or to the right (more demanded at each price).
Price (S)
S10
Action: Substitute Product ‘pizza’ went down significantly in price D1
Demand D2
Reaction: More people buy ‘pizza’ instead of hamburgers
Resultant Shift: Less Demand for hamburgers which results in a shift to the left 10
100
200
Quantity
Decrease demand from 42

43. Price of other products
Factors of supply
The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sale whereas a fall in price would lead to the quantity supplied to fall.
Factors of Supply
Price of the product
Price of other products
Price of inputs

44. Changes in the SUPPLY CURVE
Two (2) types of physical changes:
1. Movement along the curve is caused by ONLY by a
change in price.
For eg. A price rise will see an  in supply because producers will anticipate large profits. Producers will suddenly want to produce those goods or services.
2. Shift in the curve is caused by a change in any of the factors that will change the level of supply such as:
Expectations
Preferences
Income
Price of complementary product
Price of Substitute product
These factors causes the demand curve to shift either:
Left (Less demanded at each price) D2
Right (More demanded at each price) D1
see example on graph

45. 1. Movement along the SUPPLY curve
Movement along the SUPPLY curve is caused by a change in the:
The price of the product itself- assuming the cost remain the same the higher, the price, the greater the profit on each item, meaning that the producer is willing to supply higher quantities the higher the price

46. Movement along the Supply Curve
Price $
Supply $7
The supply curve slopes upwards from left to right indicating a positive relationship between supply and price. As price rises, it encourages producers to offer more for sale whereas a fall in price would lead to the quantity supplied to fall. $3
200
800
Quantity (000s)

47. 2. Shift of the SUPPLY curve
Shifts of the supply curve are caused by the following factors:
The price of inputs – the lower the price of inputs the more profit per unit and so the greater the quantities producers are willing to supply
The price of other products – for example if the price of other products rises and there is a perception of increased profits, then the producers may switch to supplying more of those products and less of the original

48. The Supply Curve
Changes in any of the factors OTHER than price cause a shift in the supply curve
A shift in supply to the left – the amount producers offer for sale at every price will be less
A shift in supply to the right – the amount producers wish to sell at every price increases
HINT: Be careful to not confuse supply going ‘up’ and ‘down’ with the direction of the shift!

49. SHIFT of The Supply Curve
Price $ S1
Supply S2
Changes in any of the factors affecting supply other than price will cause the entire supply curve to shift. A shift to the left results in a lower supply at each price; a shift to the right indicates a greater supply at each price. $4
At S1, the selling prices is $4 but there is a decrease in supply as there in is a change in either the price of inputs or the price of other products
100
400
900
Quantity (000s)

50. The Market S Price ($) Surplus D1 D Quantity Bought and Sold (000s) $5
A shift in the demand curve to the left will reduce the demand to 300 from 500 at a price of £5. Suppliers do not have the information or time to adjust supply immediately and still offer 600 for sale at £5. This results in a market surplus (S > D)
In an attempt to get rid of surplus stock, producers will accept lower prices. Lower prices in turn attract some consumers to buy. The process continues until the surplus disappears and equilibrium is once again reached.
Surplus $5 $3
The slides that follow will put the demand curve and supply curve together. The emphasis is on explaining the PROCESS by which markets change.The initial starting point will be the basic equilibrium position Students can be advised that this type of analysis begins with a starting point, introduces some form of change and then analyses the process by which prices and quantity will change and the reasons for this. The first slide deals with a fall in demand. The reasons for the fall in demand could be related to an event occurring at the time but needs to be linked in to the formula given earlier. As demand falls consumers now wish to purchase less at each price. The emphasis must be on the fact that suppliers cannot control demand and therefore do not necessarily anticipate such changes, they therefore need time to be able to react. The fall in demand will mean that some suppliers will not be selling as many items, a surplus will develop (highlighted by a flashing ‘surplus’ sign) that will force prices down. A new equilibrium will be established where the new demand curve intersects with the existing supply curve at a lower price and with less items bought and sold. There is much room for confusion of this process and students need time to be able to experiment with it to reflect on it and build it into their learning. The second slide deals with a change in supply – this time creating a shortage. The same process occurs but in reverse. The next stage would be to get students to explain what would happen if the demand rose and if supply also rose. D1 D
300
450
600
Quantity Bought and Sold (000s)

51. The Market S1 S Price ($) Shortage D Quantity Bought and Sold (000s)
A shift in the supply curve to the left would lead to less products being available for sale at every price. Suppliers would only be able to offer 100 units for sale at a price of £5 but consumers still desire to purchase 600. This creates a market shortage. (S < D)
The shortage in the market would drive up prices as some consumers are prepared to pay more. The price will continue to rise until the shortage has been competed away and a new equilibrium position has been reached. $8 $5
Shortage D
100
350
600
Quantity Bought and Sold (000s)

52. Factors of Demand Test your memory….. E Price of S Price of C
Price of the P Pr

53. Factors of supply
Test your memory….. What are the 3 factors that affect supply?
Factors of Supply