Year 11 Prelim Economics Notes PDF

ECONOMICS STUDY NOTES INTRODUCTION TO ECONOMICS THE NATURE OF ECONOMICS The economic problem The economic problem states that unlimited wants must be satisfied by limited resources. Therefore, economics is a study of scarcity and choice. - Individual wants: The wants of each person, which depends...

ECONOMICS STUDY NOTES INTRODUCTION TO ECONOMICS THE NATURE OF ECONOMICS The economic problem The economic problem states that unlimited wants must be satisfied by limited resources. Therefore, economics is a study of scarcity and choice. - Individual wants: The wants of each person, which depends on their preferences, how the wants can be satisfied and their ability to purchase the wants. - Collective wants: The wants of the whole community and are usually provided by the government through their taxation revenue. Key Economic decisions - What to produce - How to produce - How much to produce - How to distribute production Opportunity Cost Represents the alternative. What is forgone in an economic decision. Goods forgone/ goods gained Production Possibility Schedule/ Frontier New Technology: New Resources Unemployment Future Implications Choices between consumer goods (satisfying demand now) and capital goods (increasing future productive capacity). Current Choice Current Implications Future Implications Individuals Spend/use resources à higher living standards à lower living standards Save money/resourcesà lower living standards à higher living standards Business Invest in capital à reduced cash flow, less à increased production, profit, high risk potential profit Government Increase gov. spending à higher debt à improved quality of life and economic growth THE OPERATION OF AN ECONOMY Production of Goods and Services from Resources Factors of production Resource Definition Reward Land The natural resources that are used to produce goods Rent and services e.g. trees, fish, minerals. Labour Human effort- mental and physical- in the production Wages of goods Capital tools, machinery, buildings, etc used to produce g/s- Interest improve the productivity of other resources. Enterprise Organised other factors- brings production process Profit together Circular Flow of Income Market Economy - Private ownership of property - Low levels of govt intervention - Competition allows the price mechanism to work effectively - Consumer sovereignty Planned Economy - All resources owned and managed by govt - Very high govt intervention Mixed Economy - The government intervenes to:  Ensure efficient resource allocation  Create a more equal distribution of income  Help maintain economic stability  CONSUMERS AND BUSINESSES CONSUMERS Consumer Sovereignty When consumers ultimately decide what they spend on and what goods and services they consume- where the desires and needs of consumers control the output of producers. Factors that reduce consumer sovereignty: - Marketing - Deceptive of misleading behaviour - Anti- competitive behaviour - Planned obsolescence Average Propensity to Save (APS) The proportion of an individual's income that is saved. Savings/ income Average Propensity to Consume (APC) The proportion of an individual's income that is spent. Consumption/ income Marginal Propensity to Save (MPS) If there is additional money, how much of that is saved. Change in savings/ change in income Marginal Propensity to Consume (MPC) If there is additional income, how much of that is spent. Change in consumption/ change in income Factors influencing decisions to spend or save - Income and future expectations - Cultural Factors - Confidence and future expectations - Life stage and age distribution - Government polivies - Availability of credit Income As incomes rise, APC falls Sources of Income - Wages from labour - Rent from land - Interest from capital - Profit from enterprise - Welfare supplied by government BUSINESS A firms production decisions - What to produce - How to produce - How much to produce Main goals of firms Profit Maximisation Maximising revenue and minimising expenses Meeting shareholder -Ensuring business success in order to provide dividends expectations  Increasing market Being the dominant firm in an industry share -Expanding product range -Introducing more effective marketing -Developing better relationship with customer base to satisfy needs Growth Maximisation Maximising market share at the expense of some profit Satisficing behaviour Balancing and satisfying all goals simultaneously. -Suffice expectations rather than exceed them (bare minimum) Efficiency and Productivity Productivity: Amount produced with a given quantity of resources per unit of time. Output/input - Less waste - Lower production costs - Higher incomes - More wealth and opportunity Specialisation is one strategy used to increase productivity in which production moves along an assembly line. Marginal Returns Considers the output added by each worker in the production process Diminishing marginal returns - Size and space of workplace - Limited amount of tasks - Miscommunication and confusion - Access to fixed resources Economies of Scale The cost advantages gained by increasing the scale of production. Technical optimum: where the business has the lowest costs per unit. Beyond this point internal diseconomies of scale may occur. MARKETS DEMAND AND SUPPLY Demand The law of demand states that a higher price leads to a lower quantity demanded and that a lower price leads to a higher quantity demanded. The demand curve is always downward sloping. Factors Affecting Demand - The price of the g/s itself - Luxury or necessity - Price of other g/s (substitute or compliment) - Expected future prices - Income levels - Size and age of population - Changes in tastes and preferences Movements Along and Shifts in the Demand Curve Change in price: movement along the curve. Expansions and contractions Any change other than price: shift in the curve. Increases and decreases. Price Elasticity of Demand Responsiveness of consumers to a change Elastic price ↑ expenditure ↓ - Strong response to price change Perfectly elastic Inelastic price ↑ expenditure ↑ - Weak response to price change  Perfectly inelastic Unit elastic price ↑ expenditure - Factors effecting elasticity of Demand - Necessity or luxury - Any substitutes - Expenditure as a proportion of income - Length of time subsequent to the price change - Habit forming/addictive Price Elasticity of Supply Time lags after a The greater amount of time, the more elastic supply price change The ability to hold If a business can store stock, their supply will be more elastic as and store stock they can respond more easily to price changes Excess capacity When a firm is not using resources to their full potential Spare capacity means more elastic Markt Equilibrium Where demand=supply Price Mechanism: Forces of supply and demand, which determine the prices of products. Alternatives to market solutions- the role of government When market failure occurs, governments intervene to limit the effects. Governments may intervene by setting market prices. This occurs with either a price ceiling or price floor. Both measures result in disequilibrium. Taxes and subsidies are often strategies used by governments to influence prices in the market. Externalities - The effects of production nd consumption - Positive externalities are called merit goods - Significant social disadvantages are demerit goods Market Competition  LABOUR MARKETS DEMAND FOR AND SUPPLY OF LABOUR Demand for Labour A derived demand - Derived from the consumer demand for goods and services - Increase in demand for products = increase in demand for labour for production Factors Influencing demand for labour: - General economic conditions - Output of the individual firm - The productivity of labour - The relative cost of other inputs Labour productivity= total output/ labour input The Supply of Labour Factors effecting supply of labour: Pay levels In general, the higher the wage or salary offered, the more people will be prepared to sacrifice their leisure time and supply their labour. Other non-wage and salary incentives may be included in an  employee’s remuneration package, such as the use of a company car and extra superannuation benefits, which would also influence one’s willingness to supply labour to a particular firm or industry. Working conditions Working conditions improve= more likely to offer labour - flexible working hours, superannuation, leave entitlements Government policies like paid parental leave and benefits increase labour supply Education, skills and Higher skill: lower supply of labour (limited pool of suitable experience applicants) requirements Lower skill: larger labour supply The mobility of Geographic: Ability of workers to move from one job location labour to another - Occupations that require workers to relocate to more distant locations will receive a lower supply of labour Occupational: Ease with which workers are able to move from one job or occupation to another - Capacity to transfer skills across different occupations Labour force The proportion of the working age population who are either participation rate employed or looking for work. Factors influencing participation rate: - State of the Economy - Ageing of the population - Increase in the participation of women in the workforce The Australian Workforce Employed Work for more than 1 hour a week Unemploye Working less than 1 hour a week but actively seeking and d available to work Factors affecting size and quality of the workforce: Population size the limit to which the workforce can grow Age distribution More people aged 15-65, greater potential for workforce Education patterns Influences quality of workforce LABOUR MARKET OUTCOMES Wage outcomes and Differences in Income Nominal wages: Pay in dollar terms Real Wages: The actual purchasing power of wages in relation to inflation Factors Influencing Wage Outcomes - Skills and qualifications - Mobility- willingness to move or transfer skills - Age- younger or older workers receive relatively less - Gender - Migrant status and cultural background- english speaking backgrounds generally earn more Arguments for/against more equitable distribution of income For - More consumer satisfaction among the poor - Reduces social class divisions - Less corruption and illegal activities for financial gain - Prevent higher tax burden on taxpayers and reduce government welfare spending Against: - Potential reduction in allocative efficiency - Lack of incentive effect on workers and producers to work for higher wage Labour market trends Unemployment Labour force= employed + unemployed persons Cyclical Contraction in labour demand, workers who are let go due to lowered g/s demand Frictional People moving between jobs Structural Mismatch of labour skills due to changing industry/technology Seasonal Caused by season change Underemployment When someone has a job but is not woring sufficient hours Hidden unemployment Have difficulty or are discouraged from actively finding work - Not looking, therefore considered unemployed Underutilization Underutilisation rate = unemployment rate + underemployment rate - More resources available in the economy to use (potential economic growth) - Underutilisation greater for women than men (more casual employment) - Steadily rising: 1.8 million workers unemployed/underemployed = under- utilised Casualization - More part-time jobs created than full-time jobs - Wages rates are usually higher to compensate for lack of other entitlements (paid, leave, etc) - 35% of jobs in the economy are part-time (teenagers higher represented) Outsourcing - Outsourcing non-core business functions to external organisations o Eg schools outsourcing cleaning) - Helps reduce costs and improve focus on core business functions - Off-shoring: Work is done overseas - Outsourcing: Someone else does work for you Contractors Run their own business and sell their services to others (employ subcontractors) Subcontractors Carries out work for a company as part of a larger project LABOUR MARKET INSTITUTIONS Unions, employer associations, current employment/industrial framework Unions Represent workers on a collective basis. - Aim to increase rights, entitlements and working conditions - Australian Council of Trade Unions (ACTU) à peak union body Trade Union memberships steadily declining à 46% in 1986, 20% 2012 - Increased corporisation, decline of manufacturing industries, decentralization of wage determination, general fall in confidence of union ability Note: Critics of union action to raise minimum wage argue that it creates unemployment among low skilled/paid workers Employer Represent business groups in similar industries/aims in industrial associations relations matters - Seek to protect the rights of members in negotiations with trade unions. - E.g: Australian Industry Group (AIG), Business Council of Australia Influence - Seek wage moderation to maintain profitability and competitiveness of businesses. - Enterprise bargaining with employers provided higher wages for more productive employees à demand for productive labour has risen along with wages. Fair Work (Aim to settle disputed between employees and employers) Aus. Institutions Fair Work Australia - Vary awards, make minimum wage orders, approve agreements, determine unfair dismissal claims, order good faith bargaining and industrial action Fair Work Ombudsman - Enforce the laws through the court system if needed - Inspectors investigate breaches FINANCIAL MARKETS Financial Markets Any place or system that provides buyers and sellers the means to trade financial instruments, including bonds, equities, the various international currencies, and derivatives. Financial markets facilitate the interaction between those who need capital with those who have capital to invest. TYPES OF FINANCIAL MARKETS Primary Primary and Facilitate the creation of new financial assets that can be sold into the secondary economy markets Secondary Involve transactions with assets or securities that have already been issued in the primary market Consumer Allow an individual to buy now and pay back the original amount with Credit interest at a later date Eg credit cards, Afterpay Housing Most often in form of mortgage- a long term loan where the asset is Loans used as security meaning the bank owns part of the house until it is payed off Business Loan allowing businesses to invest in operations loans Support start-up, expansion and cash flow management Bond Instrument of debt issued to raising funds through borrowing. market Generally issued by government/large businesses to raise money  Face value: Size of the loan; written on the bond document. Coupon rate: Fixed income that the bond holder receives. Similar to an interest rate. Short term money market Financial futures Foreign Value of a currency in terms of another currency exchange - International transactions mean currency must be converted - Traded for purpose of travel, trade, investment, speculation - Fluctuate with changes in demand/supply of currency Depreciation: downward movement of one currency against another - Lowers value of AUS $ compared to foreign currencies - Each foreign unit buys more AUS, One AUS $ buys less foreign $ Winners Losers Exporters of goods/services thus Importers of goods/services more profitability Aus. tourists travelling Tourists visiting AUS overseas Aus. tourism industry Australian consumers Appreciation: Upward movement of one currency against another - Rises value of AUS $ compared to foreign currencies - Each foreign unit buys less AUS $, One AUS $ buys more foreign $ Winners Losers Importers of goods/services Exporters of goods/services Aus. tourists travelling thus less profitability Australian consumers Tourists visiting Australia The Sharemarket A collection of markets where stocks (pieces of ownership in a company) are bought and sold. Role  Individuals Benefits: - Part ownership of a company - Dividends - Capital gains - Ability to vote for the company’s board of directors. Companies Raising funds for investment without needing to borrow. Economy - Share-market performance acts as indicator of country’s economic performance - Indicator of ‘confidence/sentiment’ in the economy - ‘bullish’ share market results in greater investment by shareholders. Increased investment, higher growth rates - Share markets are efficient allocators of scarce resources. Companies with growth potential usually raise more funds in ASX Function Facilitates: - The sale of new shares or equities (primary market) - called a float - Buying and selling of pre-existing shares (secondary market) - Trading of other securities, e.g. Options, futures and bonds - Allows businesses to raise funds for establishment and growth o Share price set by market forces of demand and supply o Higher share price indicates a business is doing well o Low share price forces management to improve performance Effect - Fluctuations in the share market mirror changes in economic growth, but the share market is much less stable than the real economy, and small changes in economic growth can contribute to enormous changes in share values. - Generally, the areas in which the share prices are higher will reflect the growth areas of the economy. - Speculation occurs when investors buy shares with the intention of re-selling them for a higher price within a short period. This can lead to overvaluation of share prices. Regulation of financial markets RBA Reserve bank of ausdtralia - Conducting Monetary Policy - Systemic Stability - Control of Notes Issue/currency - Regulation of the Payments System - Bank for banks across the country - Responsible for holding Australia’s reserves of Gold and Foreign - Provide banking services to government APRA Australian Prudential regulation Authority Regulates and enforces guidelines set by the RBA for all deposit taking financial institutions eg Banks, Insurance, Superannuation Funds - Issuing or withdrawing bank licenses - Setting standards regarding debt, risk and liquidity - Approving changes to structures and operations - Reviews of systems and management - Enforcement of regulations if needed APRA’s main responsibility is to ensure that all institutions are capable of repaying the people who hold deposits and funds with them. ASIC Australian Securities and Investment Commission Responsible for monitoring the functioning of companies operating in Australia. - Works to protect consumers and investors and maintain integrity in company processes Companies Securities Industry and Markets - Formation - ASX - Registration - Bonds markets - Reporting - Futures markets Australian Australian Treasury Treasury Anticipate and analyse policy issues, understand government/stakeholder circumstances and respond rapidly to changing events - E.g. Manage Australian Government Function - Provide policy advice regarding budget, taxation, financial sector, foreign investment, etc - Manage federal financial relations - Work with state governments on key policy areas Council of Council of Financial Regulators Financial Crisis management – promote stability of the Australian financial Regulators system and efficient regulation by Australian regulatory agencies - Regulate all four other regulators (RBA, ASIC, APRA, treasury) Function - Identify important issues/trends in financial systems which impact financial stability - Ensuring appropriate coordination among agencies to respond to financial instability - Engage with work of international institutions, forums and regulators which relate to financial system stability Borrowers Individuals Personal purposes (purchase products) à mortgages, loans, credit Business Expansion, Research and development investment, overcome cash flow downturns Government Running budget deficits (more spending than taxes), to rasie levels of economic activity Factors affecting the demand for funds Transactions Funds are held for day to day transactions + regular payments motive Precautionary Funds for unpredictable circumstances and emergencies motive Speculative motive Funds kept aside for investment purposes, kept aside to be invested in expectation of a higher return. Financial Changes in payment options reduce demand for cash money innovations for transactions eg applepay Lenders Individuals Lend to financial institutions for return. Shares, bonds, interest- bearing deposit Business Deposit if interest rates are more lucrative than internal investment Government Whilst in surplus- a government may invest money (e.g. international loans) to maintain positive balances International Known as foreign liability (must be repaid) - to finance domestic consumption & investment Interest rates Interest rates are the cost of borrowing money. Lending rates Interest rate which banks charge for loans to their customers. This is higher than the borrowing rate. Borrowing rates Interest rate which banks pay their deposit holders for their funds. This is lower than the lending rate. The role of the RBA in determining the cash rate On the 1st Tuesday of every month (besides January), the RBA determines the official cash rate. This is important in the economy as it influences other interest rates. 3 concepts to understand how changes to the cash rate occur: Exchange settlement accounts  Held by banks with the RBA  Enable banks to settle transactions and move payments between themselves and the RBA  At the end of each day, banks will have to transfer money in these accounts to other banks or institutions  If banks have a shortage of funds, they will borrow from another bank in the overnight money market  The interest rate in this market is the cash rate The cash rate corridor The RBA places a floor and ceiling price around their cash rate target. Floor: Excess funds held by banks in ES accounts will be deposited with the RBA at a rate 0.25% lower than their cash rate. Ceiling: The banks that must borrow funds to settle transactions can borrow from the RBA at their lending rate 0.25% above the cash rate target. When the RBA makes adjustments to the cash rate, they change their lending and deposit rates in the Overnight money market Domestic market operations When the RBA buys and sells govt bonds to support changes to the cash rate corridor and influence money supply. Eg: When demand for funds in the Overnight Money market is high, banks generally have limited money in ES accounts, putting upward pressure on the cash rate. In response, RBA buys bonds from banks and deposits in their ES accounts, increasing liquidity (money supply) Monetary Policy Involves action by the RBA on behalf of the government to influence the cost of credit in the economy Purpose: stability of Australia's now means maintaining low and stable currency inflation and preserving the purchasing power of the Australian dollar maintenance of full in effect means reducing the level of employment in Australia- unemployment Promoting the economic encouraging sustainable levels of economic prosperity and welfare of activity and growth  Australia Since 1993, the RBA has conducted monetary policy by using inflation targeting to help it achieve price stabilityand work towards sustained low inflation Australia has a flexible target of 2-3% over the course of the economic cycle Implementation: The RBA uses monetary policy in a pre-emptive manner- reducing the likelihood of forecast changes in the economy. Possible monetary stances: - A tight or contractionary stance- adopted when the cash rate is raised to slow economic activity and reduce inflationary pressures - A neutral stance- no change to the cash rate - A loose or expansionary stance- adopted when the cash rate is cut in order to promote economic activity (consumption and investment) and raise employment prospects GOVERNMENT AND THE ECONOMY GOVERNMENT INTERVENTION IN THE ECONOMY Limitations of the operation of the free market Market failure: occurs when the price mechanism fails to consider broader social and environmental consequences. Provision of goods and services Public goods Goods not provided by private sector as they cannot make profit selling them - Non rival (one person's use does not limit availability for others) - Non excludable (encourage free riders. Cannot completely exclude someone from enjoying the product if they have not payed) Examples: clean air, public parks, street lighting Merit goods Goods that benefit the community beyond benefits to the individuals that use them. Examples: libraries, museums, healthcare Demerit goods: broad social issues eg alcohol, gambling  Goods and Underproduction: not at the socially optimal position because they services are not valued sufficiently by consumers Overproduction: cause negative externalities because costs associated with the production/consumption are not included in the price mechanism Income Distribution Disadvantaged Free market result in wider difference in income and higher groups income inequality. - The aged (no pensions or medicare) - Disabilities (no NDIS) - Young (no youth wage, minimum wage) - Hard re-entry into labour market (no paid parental leave) - Structural unemployment (no ov. Training) - No unemployment benefits - Indigenous worse off (no funding on welfare, training, healthcare) - Lower income/jobs for migrants (no gov. support) Relative Lives on less than the average income within the economy. Do not poverty earn enough to maintain the average standard of living in their area Free market: Households do not pay taxes and do not receive welfare payments. - No laws in relation to minimum wage and conditions - Advantages people with high income jobs Gov intervention improves: - Equality: taxes higher income earners more which reduces difference - Redistribution: tax used to fund welfare for low earners, reduces difference in income Externalities and the Environment When the price mechanism and the free market make production decisions based on private costs and benefits which are not always beneficial to the whole of society, there are negative externalities. Governments thus often intervene to preserve environmental sustainability. By adding a cost associated with the negative externality, firms' production costs will increase. The extra costs are a disincentive to produce, so supply decreases (s-s1). After the market clears, a new market equilibrium is established with a higher price per unit and fewer goods provided. Monopoly Power Formation 1. Natural: may be due to limited infrastructure (Sydney water gov. owned) - Not feasible/cost worthy to establish competition 2. Ownership of scarce resource: owner has exclusive control over a physical resource (only supplier of raw metal) - Exclusive control of intellectual property 3. Acquistion/merger: after acquisition there is only one supplier. - If Coles and Woolworths merged Risk of high pricing, no incentive for productivity improvements and less innovation. Achieve higher profits through the absence of competition Privatisation The transfer of a business, industry, or service from the Government sector to private ownership and control. Corporatisation The restructuring or transformation of a state-owned asset or organization into a corporation Competition If there are no laws that prevent anti-competitive behaviour firms may pursue profit maximisation to increase price and profit - Buyout/takeover: Possible if company has large market  share. Establishes monopolist supplier with no competition. Can increase prices and profit - Collusion: Collectively agree on higher prices to be charged by all suppliers. Reduces competition, increases prices, negatively impacts customers Fluctuations in Economic Activity The Government in the mixed economy intervenes to smooth out the severity of fluctuations in the business cycle. Govts implement policies that are counter-cyclical intended to act against the free market forces. During periods of low/slow economic activity, govt policy will be expansionary- increased spending and recused taxation to promote activity. Government macroeconomic policy are those that aim to influence demand and production in the whole economy. Both discal policy and monetary policy make up the govts macro tool kit and are used to stabilise growth levels. THE ROLE OF GOVERNMENT Levels of govt - Local - State - Federal Constitutional Powers  - House of Reps - Senate The Public sector Refers to parts of the economy owned or controlled by the government. Includes all tiers of govt and govt business enterprises (eg Aus post, Sydney water) Public sector outlay: Taken as a percentage of GDP, shows the proportion of total annual expenditure by all levels of government (Commonwealth, state and local – including public trading enterprises) compared with the expenditure for the economy as a whole. Economic Functions of the Government Reallocation Direct Taxes: paid by the individual or firm on which they are of resources levied. Cannot be passed on. Eg personal income tax, capital gains tax Indirect Taxes: Levied on individuals and businesses but they can be passed on. Eg GST. Governments use indirect taxes such as on alcohol and tobacco and direct resources away from those products Government spending Redistribution Progressive tax: in which the marginal rate of tax increases as of income incomes increase - Taxation revenue collected by the government is then payed to other recipents in the form of unemployment benefits, pensions and childcare subsidies. - However recent and proposed changes to Australia's system of tax are making this less progressive. This is because fewer brackets reducing marginal rate of tax from 32 and 33% to 30%. Regressive tax - The opposite of progressive. Under this system, lower income earners pay a higher proportion of their income as tax. For example. The GST (Goods and Services Tax). Even though there is a flat rate of 10%, the proportion of tax paid by lower income earners is generally higher. Social welfare Payments - Government redistributes its tax revenue to lower-income earners via social welfare payments, also known as income support payments. Major policy instrument for reducing income inequality in Aus. Account for around 1/3 of government expenditure each year, and therefore  considerably impact upon the distribution of income in the economy - The largest single area of social welfare payments is for the age pension. Most Australians rely on the age pension for financial security in their retirement - Jobseeker: Financial help if you’re between 22 and Age Pension age and looking for work. - Child Care Subsidy: This is a Services Australia payment that helps with the cost of approved childcare. Stabilisation of Policies designed to smooth fluctuations in the business cycle are Economic called macroeconomic policies. Activity Monetary policy - the main stabilisation policy. - Involves action by RBA: use of domestic market operations (DMOs)- buying and selling of government securities to affect the cash rate in the short-term money market and influence the level of interest rates in the economy. - Higher interest rates can curb excessive growth, while low interest rates tend to encourage spending and business investment, in turn lifting the growth rate. Tight MP: govt wishes to slow economic activity. Upward pressure on interest rates. High interest rates reduce demand for money and dampen consumer and investment spending, resulting in a lower level of economic activity. This drop in aggregate demand would reduce inflationary pressures, but can lead to a rise in cyclical unemployment. Loose MP: govt wants to increase economic activity. Downward pressure on interest rates. Lower interest rates would increase the demand for money and boost onsumer and investment spending, resulting in a higher level of economic activity.  Fiscal policy - also plays a very important role through the direct effect of the government’s overall level of spending, taxing and borrowing in a year. - important role in influencing economic growth and unemployment, especially when the economy faces a downturn (as took place with COVID-19) Government Many government business enterprises have been sold off to the Business private sector through a process of privatisation. enterprises - Telstra - Commonwealth Bank - Qantas Most of those government-owned enterprises that have not been privatised, such as Australia Post, have undergone a process of corporatisation. This meams they have been restructured to replicate a private firm and aiming to increase ifficiency. - Australia Post - Australian Rail Track Corporation - state electricity authorities (privatised in some states) Other – Governments have other, smaller functions in the economy that Competition aim to make markets produce better outcomes in the longer term. and These include ensuring a workable level of competition in the environmental economy, protecting consumers from unfair business conduct and roles protecting the natural environment. Workable Competition Government policies assume that competition will produce a more efficient use of resources, lower production costs, lead to product innovation and lower prices for consumers. However, the goal of increasing competition must be balanced against the goal of achieving economies of scale. Sometimes it may be necessary to have very few firms in an industry. Those firms can produce on a larger scale and achieve the lowest possible long-run average costs of production. - Competition is less than perfect, but adequate enough to give buyers genuine alternatives. Benefits of competition: - Companies compete for lower prices - incentivizes firms to enhance quality  - Innovation and Creativity - Consumer Choice: best suit their preferences and needs. - More equitable distribution of wealth as it enables new entrants to challenge established firms, breaking up market dominance. Australian Competition and Consumer Commission (ACCC) - promotes competition in markets to benefit consumers, businesses, and the community - responsible for making sure that individuals and businesses comply with Australian competition and consumer protection laws - in particular the Competition and Consumer Act 2010. Sustainable use of resources - Establish and enforce environmental regulations and standards to limit the negative impact of resource use. - Create economic incentives to encourage sustainable practices. - Pricing resources more accurately to reflect their true environmental cost, governments can encourage more responsible consumption. Eg carbon tax - Subsidies for Green Infrastructure - Protected Areas and Conservation - International Cooperation - Sustainable Agriculture Incentives Federal Budget A document that sets out the estimated revenues and expenditures of the Australian Government in the following financial year. Budget outcomes: - Surplus - Deficit - Balanced budget Surplus 2023 - May 2023, the govt forecast a 4 billion surplus for 2022-2023 financial year followed by an estimated 14-billion-dollar deficit in 2023-24  - However, at the end of June 2023, the actual budget surplus had grown from 4 billion to 19 billion o Extremely low unemployment- decreased need for welfare payments, more tax revenue due to more members of workforce/taxpayers o High business/company profits Fiscal Policy The use of government spending and taxation to influence the economy. Macroeconomic policy. Changes in fsical policy are expressed through the govt’s “stance”: - Expansionary: spending increases to promoted growth. Leads to increase in budget deficit/smaller surplus - Contractionary: aims to slow economic growth. Govt expenditure decreases. Smaller deficit/ larger surplus Automatic Stabilisers i) Taxation revenue: GDP growth leads to increase wages + profits results in increased government revenue. - Strong job growth and rising wages lead to increase in revenue from personal income tax - Soaring iron ore and coal exports- injections into the economy ii) Welfare payments: unemployment= 3.5% lowest in Australia in 50 years Overview of 2023 budget policy: high priority for individual living cost - $14 billion cost of living package - $40 dollar a fortnight increases to income support. - $3.5 billion to triple the Medicare bulk billing incentives for GP’s, reducing the cost of medical treatment and advice. - 2.7 billion for a 15% increase to commonwealth rent assurance scheme.\ Influences on Government Policy Political - Changes to economic policy must first be advanced by the Parties government in power - The structure of government in Australia requires that most major policy changes must then be authorised through an Act of Parliament. While some administrative changes may not require the support of parliament, measures such as the Budget, taxation reform, industrial relations reforms and the privatisation of government businesses do require the support of parliament. - Since political parties form governments, they play a key role in the process of making economic policy. In Australia, federal and state governments are usually formed by a single political party (such as the Australian Labor Party) or a coalition of the two conservativesparties, the Liberal Party and the National Party (often just known as “the Coalition Parties”). Businesses Australia has a market economy with a significant role for private businesses in most sectors. These businesses therefore have a part in lobbying governments influencing political decisions + law making.