Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Content Page 1.1 Consumer Choices using Demand Limited means relative to wants 07 Scarcity, choices and opportunity cost 13 Individual demand schedules 18 Individual demand curves 23 Consumer reaction to price changes 28 Consumers and non price changes 33 Household income and spending 44 Demand curves summary / flow chart 59 1.1 Checklist and evaluation 63 1.3 Producer Choices using Supply Individual supply schedules Individual supply curves Producer reaction to price changes Producers and non price changes Supply curves summary / flow chart Flow-on effects and impacts on firms 1.3 Checklist and evaluation 65 70 75 80 98 101 106 1.4 Choices and Market Equilibrium Market demand schedules and curves Market supply schedules and curves Market equilibrium Market reaction to a shortage/surplus Changes in demand and supply Effect of a sales tax Effect of a direct tax Effect of a subsidy Effect of a max. / min. price control 1.4 Checklist and evaluation 108 112 109 122 128 136 143 145 152 157 Find out what is required SUCCESS Deliver Content Page 1.2 Producer Choices using Production Resources and resource use 160 Renewable and non-renewable 163 Labour and capital intensive methods 167 Goals of producers 168 Factors affecting productivity 172 Business expansion 176 Economies and diseconomies of scale 180 Price marketing 184 Non-price marketing 186 1.2 Checklist and evaluation 191 1.5 Choices with Different Viewpoints Scarcity and economic decisions 193 Costs, benefits and compromises 196 Justified recommendations 198 Internal planning page 200 Practice internal 201 1.5 Checklist and evaluation 204 1.6 Interdependence in NZ Economy Interdependence in producer sector Interdependence between sectors Circular flow model Impact of an event on a sector Flow-on effects to other sectors 1.6 Checklist and evaluation 207 210 211 215 218 224 - – Limited means relative to wants Ben’s resources are his four personal means. F I T S Terms to memorise He can use his personal endowments to satisfy his needs and wants. Family is limited: parents and grandparents. whanau / hapu / iwi. brothers / sisters. Income is limited: wages or salary. gifts/donations/transfers. investment income. Time is limited: only 24 hours in a day. we can only do one thing. at a time etc. Skills are limited: ability to do something. ability to make something. talents and qualifications. Ben’s wants are unlimited as he always desires more than he has now. Resources – personal endowments we have (Family, Incom Income, Time, Skills). Means – personal resources. Whanau – extended family. Time – hours, days available. Skills – abilities,qualifications. Income - money earned. Wants – desires. Goods and services that we would like to have but not essential for life. Needs – essentials for living. a) Individuals have N__________ and W____________. We use our P__________ R___________ (also called M_______) to satisfy our needs which are E__________. Then we use our remaining means to satisfy our W_______ which are D__________. Our means are L___________ where as our wants are U___________. b) What are Ben’s four limited means? F ____________ I ______________ T _____________ S ____________ c) Why does being part of a larger family increase a person’s means? __________________________________ d) State three ways Ben could earn an income. 1 _______________ 2 ________________ 3________________ e) Identify two ways Ben could increase his skills. 1 ______________________ 2 ________________________ f) State the acronym that can be used to remember the four limited means all consumers have.______________ g) Why are Ben’s “means” limited? _____________________________________________________________ h) Why are Ben’s “wants” unlimited? ____________________________________________________________ i) Complete the table below by circling the correct “means”.(F = family. I = income. T = time. S = skills) A B C D E Personal resource Type of “means” Saturday mornings F I T S Driving licence F I T S Wages F I T S Grandparents F I T S First Aid Certificate F I T S F G H I J Personal resource Type of “means” Birthday money F I T S NCEA qualification F I T S Weekdays after school F I T S Parents F I T S Interest on savings F I T S 1a. Draw and label each of your immediate family members on the inside circle. 1b. Draw and label each of your extended family members on the outside circle. 1c. Complete the table. List each family member here How each person has helped you satisfy a need or a want ME 2. Use arrows to match the following situations to income and type of income earned. Mow neighbour’s lawn It’s my birthday Wrote a book Savings in the bank Have a job as a teacher Real estate agent sells a house Gift of $30 $20 wages $2 per item sold 3% earned on bank deposit 4% of final sale price $50,000 per year Annual salary Transfer payment Payment for labour Interest received Royalty payment Commission 3. Complete your timetable for this week. Include the time you spend at school, travelling, working, activities and sports, chores, volunteer work, eating, sleeping, on the internet, studying etc. Monday Tuesday Wednesday Thursday Friday Saturday Sunday 6-9am 9-12pm 12-3pm 3-5pm 5-8pm 8pm-12am 12-3am 3-6am 4. State an example for each of the following: How do you use your income to be entertained and not bored? ______________________________________ How do you use your family to feel nourished and not hungry? ______________________________________ How do you use your skills to get around town and not be stuck at home? _____________________________ FITS: Ben’s Dad is helping him with his homework. FITS: Ali is getting married. Her mum makes a wedding dress for her. 1. Explain why Ben’s family increases his means. 1. Explain how Ali’s mum increases her means. (D)Means = personal resources. Family = whanau (D)Means = (E)Because Ben’s Dad is a family member he is (E)Because Family = willing to help Ben out. Ben can achieve more with the help of his family than he could on his own. (R)Ben’s family helps him increase his means. (R) FITS: Ben has $200 in the bank. He wants to buy a new iPod and a new PS2 games system. FITS: Ali has $10,000 in the bank for her wedding but she also wants to get new car. 2. Explain why Ben cannot buy everything he wants. 2. Explain why Ali cannot buy everything she wants. (D)Wants = desires. Means = personal resources. (E)Because Ben only has $200 in the bank and (D)Wants = (E)Because Means= an iPod and a PS2 cost more than $200.Ben doesn’t have enough income so he needs to make a choice. (R)Ben has $200 but wants an iPod and PS2. FITS: Ben works at the supermarket on Saturdays. This winter he wants to join a rugby team. 3. Explain the concept of limited means to Ben. (D)Limited means =. personal resources eg. time. (E)Because Ben has limited time on Saturdays he (R) FITS: Ali works full time but also wants to complete a degree at university. . 3. Explain the concept of limited means to Ali. (D)Limited means = (E)Because can’t work at the supermarket and play rugby. Ben needs to choose one option as his time is limited. (R)Ben has limited means (eg. time). (R) FITS: Ben made a skateboard ramp out of old plywood sheets he found in the garage. FITS: Ali spent Saturday morning changing the oil in her new car. 4. Explain how Ben’s skills increase his means. 4. Explain why Ali’s skills increase her means. (D)Skills = ability. Means = personal resources. (E)Because Ben had the skills required to make a (D)Skills = (E)Because skateboard ramp, he had the ability to satisfy a want that he may not have had the income to purchase. (R)Ben’s ramp building skills increased his means. (R) Means = The marker is looking for: Get it right! You need to: (D) define the limited means of the consumer. (E) explain the connection between the means being limited and the consumer’s wants being unlimited. (R) refer to the information in the reference material. limited means are identified. reference is made to the resource material. connection between limited means and unlimited wants. Exam technique: Common mistakes: write F.I.T.S in the margin of the exam paper to help you remember: Family Income Time Skills. not writing “time is limited etc” in the answer. not referring to the information in the question. saying “money” instead of “income”. Sam is considering between going to a Guitar Hero competition on Saturday, or going to the mall to cruise round with his mates. His mum wants him to stay home and tidy his room and mow the lawn. . 1. Explain how time is a limited means for Sam. (D)Time = (E)Because Limited means = (R) Sam has $300 in the bank. He is saving up to buy his first car. In the weekend he also saw a guitar he wants to purchase. During the week he wants to take his girlfriend out to see a movie. . 2. With reference to the information above explain why Sam is not able to satisfy all his wants. (D)Wants = (E)Because Limited means = (R) Sam is organising his 21st birthday. His mum will help make the food while his dad is going to set up the hall. His uncle will operate the BBQ and his grandmother has written out all the invitations. . 3. Explain with reference to the information above how Sam’s family increases his personal resources. (D)Family = (E)Because (R) Personal resources = Assessor’s use only (circle) Alice wants to play in the school basketball team. She would also like to be in Stage Challenge. However, rehearsals are on Fridays, when her games are on. Alice’s mum drives her to after school activities as she doesn’t have her licence yet. She is still saving up for driving lessons. (a) gfgf From the information above, identify one of Alice’s means. A (b) State one way Alice’s family increases her limited means. A (c) Explain how Alice’s skills influence her ability to participate in after school activities. (D) (E) (R) (d) M Explain how income is a limited personal resource for Alice. (D) (E) (R) (e) M Alice wants driving lessons. Explain how Alice could use her income to satisfy her wants. (D) (E) (R) M (f) Explain why Alice has to choose between playing basketball and participating in Stage Challenge. (D) (E) M (R) My grade for this section: (circle) ACHIEVED MERIT EXCELLENCE A=2A M=2A+3M E=2A+4M Price change price increase Read the question. Is the price of the good changing? Law of demand applies Ceteris paribus applies What is happening to the price? movement along the curve How do you draw the change to the demand curve? price decrease Price change? Change in quantity demanded Price increase? Quantity demanded falls Q1 to Q2 Quantity demanded Price decrease? Price increases from P1 to P2 Quantity demanded rise Q1 to Q2 Price $ Price $ P2 P1 P1 P2 Price decreases from P1 to P2 D D Q2 Q1 Q1 Quantity Q2 Quantity Non price change T.I.C.S increase Read the question. Is something other than the price changing? Non-price change? Demand Is there a change in Tastes, Income, Complement price or Substitute price? (T.I.C.S.). Ceteris paribus broken Does the T.I.C.S's factor cause demand to increase or decrease? How do you draw the change to the demand curve? Shift of the curve T.I.C.S. decrease Change in demand T.I.C.S. factor decrease? T.I.C.S. factor increase? Shift of the curve left from D to D1 Demand decreases Demand increases Price $ Price $ P1 P1 D1 Q2 D Q1 Quantity Shift of the curve right from D to D1 D Q11 D1 Q2 Quantity Did the price of the good itself change? Did the price increase? yes Did the price decrease? no yes yes no Price $ Price $ P2 P1 P2 P1 D D Q2 Q1 Q1 Quantity Explain a decrease in quantity demanded. Q2 Quantity Explain an increase in quantity demanded. D Quantity demanded is how many a consumer is willing and able to demand at one price. D Quantity demanded is how many a consumer is willing and able to demand at one price. E Because (state the good) price increases it is relatively less affordable so consumers (state the consumer’s name) switch to a relatively cheaper substitute instead (Eg...). This follows the law of demand. E Because (state the good) price decreases it is relatively more affordable so consumers (state the consumer’s name) switch from a relatively more expensive substitute instead (Eg...). This follows the law of demand. R As price of (state good) increases from P1 to P2 (state prices) the quantity demanded decreases from Q1 to Q2 (state quantities). R As price of (state good) decreases from P1 to P2 (state prices) the quantity demanded increases from Q1 to Q2 (state quantities). Did the consumer’s Tastes, fashion or preferences change? Did Tastes, fashion or preferences increase? yes no yes yes no Price $ Price $ P1 P1 D Q11 D1 Q2 Quantity Explain a demand increase. Did Tastes, fashion or preferences decrease? D1 Q2 D Q1 Quantity Explain a demand decrease. D Tastes, fashion or preferences increase. D Tastes, fashion or preferences increase. E Because (insert consumer’s name) is more willing to demand (state good) as his/her tastes / fashion / preferences for (state good) increase. E Because (insert consumer’s name) is more willing to demand (state good) as his/her tastes / fashion / preferences for (state good) increase. R (Insert consumer’s name) demand for (state good) increases so his/her demand curve shifts right from D to D1. R (Insert consumer’s name) demand for (state good) increases so his/her demand curve shifts left from D to D1. Did the consumer’s Income or disposable income change? Did Income or disposable income increase? yes Did Income or disposable income decrease? no yes Price $ yes Price $ no P1 P1 D Q11 D1 D1 Q2 Quantity Q2 Explain a demand increase. Q1 Quantity Explain a demand decrease. D Income is money earned. Disposable income is income after tax and transfers. D Income is money earned. Disposable income is income after tax and transfers. E Because (consumer’s name) is more able to demand as he/she is earning more / disposable income increased due to a decrease in income tax. E Because (consumer’s name) is less able to demand as he/she is earning less / disposable income decreased due to an increase in income tax. R (Consumer’s name) demand for (good) increases so his/her demand curve shifts right from D to D1. R (Consumer’s name) demand for (good) decreases so his/her demand curve shifts left from D to D1. Did the price of a Complement good change? Did the price of a Complement decrease? yes no Did the price of a Complement increase? yes no D yes Price $ Price $ P1 P1 D Q11 D1 D1 Q2 Quantity Explain a demand increase. Q2 D Q1 Quantity Explain a demand decrease. D Complements are goods/services used together. (Good 1) and (good 2) are complements. D Complements are goods/services used together. (good 1) and (good 2) are complements. E Because the price of (good 2) has decreased, (consumer’s name) quantity demanded of (good 2) increases (law of demand) so (consumers name) demand for (good 1) increases as the (good 1) and (good 2) are used together. E Because the price of (good 2) has increased, (consumer’s name) quantity demanded of (good 2) decreases (law of demand) so (consumer’s name) demand for (good 1) decreases as the (good 1) and (good 2) are used together. R (Consumer’s name) demand for (good 1) increases from D to D1. Demand shifts right. R (Consumer’s name) demand for (good 1) decreases from D to D1. Demand shifts left. Did the price of a Substitute good change? Did the Substitute price increase? yes Did the Substitute price decrease? no yes Price $ yes Price $ P1 P1 D Q11 D1 Q2 Quantity Explain a demand increase. D1 Q2 D Q1 Quantity Explain a demand decrease. D Substitutes are goods/services used in place of each other. (Good 1) and (good 2) are substitutes. D Substitutes are goods/services used in place of each other. (Good 1) and (good 2) are substitutes. E Because the price of (good 2) has increased, (insert consumer’s name) quantity demanded of (good 2) decreases (law of demand) so (consumer’s name) demand for (good 1) increases as it becomes relatively cheaper than the (good 2). E Because the price of (good 2) has decreased, (insert consumer’s name) quantity demanded of (good 2) increases (law of demand) so (consumer’s name) demand for (good 1) decreases as it becomes relatively more expensive than the (good 2). R (Consumer’s name) demand for (good 1) increases (from D to D1) when the price of (good 2) increases. Demand shifts right. R (Consumer’s name) demand for (good 1) decreases (from D to D1) when the price of (good 2) decreases. Demand shifts left. Use the flow chart to complete the table below for Anne’s Demand for coffee. Event 1 Price of coffee increases. 2 Price of tea decreases. 3 Price of muffins decreases. 4 Drinking coffee becomes more fashionable. 5 Anne’s income increases. Demand or Shift of the curve quantity or movement demanded along the curve Explain the reason for the change . For Achievement I can: Define needs, wants, means, scarcity. Identify and state the four limited means (Family, Income, Time, Skills) from resource material. For Merit and Excellence I can: Explain why the four means are limited. Explain the conflict between limited means and unlimited wants. Explain how the four limited means can be used to satisfy wants. Explain that the economic problem (scarcity) results in people making decisions. Explain that due to limited means consumers have to make decisions and give consequences. For Merit and Excellence I can: Explain the link between scarcity/limited means, choices and opportunity cost. Explain that all economic decisions will have an opportunity cost. Explain a consequence of the opportunity cost. For Achievement I can: Define consumer demand, ceteris paribus. Draw a fully labelled demand schedule / graph. Read prices / quantities from a demand curve. For Merit and Excellence I can: For Achievement I can: Define law of demand, ceteris paribus, quantity demanded. Describe the effect of a change in price on quantity demanded. For Merit and Excellence I can: Explain why quantity demanded increases when the price decreases (and vice versa). Use dotted lines, arrows and labels to show a price change on a demand curve (movement). Explain a consequence on consumers of their change in quantity demanded. For Achievement I can: Define change in demand, ceteris paribus, complements, substitutes, disposable income. Identify the four factors (T.I.C.S) that cause a change in demand /shift of the demand curve. For Merit and Excellence I can: Explain why demand changes following a change in a T.I.C.S factor. Explain a consequence on consumers of their change in demand. Use dotted lines, arrows and labels to show a non-price change on a demand curve (shift). For Achievement I can: Define opportunity cost. Identify opportunity cost from resource material. For Achievement I can: Define disposable income, luxuries, necessities, inferior goods, direct tax, transfers, normal goods. Identify examples of luxuries, necessities and inferior goods from resource material. Calculate changes in spending / demand for luxuries, necessities and inferior goods. Describe the types of goods consumers demand when their income falls / rises. For Merit and Excellence I can: Explain how a change in household income will affect spending on luxuries, necessities and inferior goods. Read a graph to explain changes in spending patterns following a change in income. Explain why spending on luxuries, necessities and inferior goods changes when income changes. Explain a consequence / flow on effect of changes in spending on a consumer’s demand. Explain why demand for luxuries, necessities and inferior goods changes when income changes. - – Producer reaction to non price changes / shifts of the curve Ben’s weekly supply curve for muffins At every price quantity supplied has increased. Price $ S S1 Ben’s weekly supply schedule for muffins Price Quantity Quantity $ S S1 0.50 10 12 1.00 12 14 1.50 14 16 2.00 16 18 Quantity (each) A decrease in costs of production as a result of political decisions, environmental issues, technology, restrictions on trade, legal requirements, cultural obligations or the decrease in the price of other related goods results in an increase in supply (shift of the curve S to S1) as the product becomes relatively more profitable to produce at each price. Terms to memorise Non price factors - changes in (P.E.T.R.O.L.C.) factors Political decisions – Eg. subsidies and sales taxes. Environmental factors – Eg. acts of nature, weather, sustainability. Technology – innovation that results in a rise in productivity. Restrictions on trade – Eg. quotas and tariffs. Other related goods – other relatively more profitable goods. Legal requirements – compliance. Cultural obligations –Eg. resource ownership Cost of production -what firms pay. (a) A change in anything other than the P________ results in a S_______ of the entire S_______ C_______. This is called a change in S_________ (quantity supplied at each price has changed). The eight non-price changes are P_________ D_________, E___________ I __________,T _____________, R _____________ O _______ T _________, O_________ R_________ G_________ P________, L_________ F___________, C_________ O__________ and C_____ O__ P____________. The L_____ of S________ no longer applies. (b) A change in “supply” causes what type of change to the supply curve? (c) State the eight non-price changes. (d) State the acronym used to remember the eight non price changes. (e) Why does the law of supply no longer apply? (f) How is the new supply curve labelled? (g) List the three requirements of showing a non price change on the supply curve. (h) State the acronym used to remember to draw the three requirements of a non-price change. (i) Describe the difference between “supply” and “quantity supplied”. 1a. Show the effect of an increase in costs of production following a negative environmental event Eg. drought. 1b. Show the effect of a decrease in costs of production following a positive environmental event Eg. lots of sun. (A) Adam’s weekly supply of avocados Nicole’s monthly supply of nectarines (B) 5.0 8 Price 7 $ Price $ kg S 6 4.5 S 4.0 3.5 3.0 2.5 2.0 5 4 3 1.5 1.0 0.5 2 1 0 05 10 15 20 25 30 0 35 40 05 10 15 Quantity (ea) 20 25 30 35 40 Quantity (kg) 2. Complete the table below by identifying two good and two bad environmental events for a dairy farmer. Two good environmental events Two bad environmental events 3. Match the correct terms with arrows. Acts of nature Costs of production Relatively less profitable Increase in supply Sustainability What producers pay to make goods and services One product will make less profit than another related good Resource use that enables resources to regenerate An event that occurs which is outside of human control Supply curve shifts to the right from S to S1 4. Complete the table below by stating why costs would increase or decrease for a potato farmer. Event Costs increase/decrease Reason for costs to change Flooding Disease outbreak High sunshine hours 5. Read the passages below and complete the questions that follow. “Drought forces sheep farmers to buy in extra hay.” “Hot summer is great news for strawberry growers.” A. With reference to the information above explain why a farmer’s supply of sheep would decrease. B. With reference to the information above explain why Sian’s supply of strawberries changed. (D)Supply = quantity at every price. (E)Because extra hay was required by , of production so (D)Supply = (E)Because become less profitable to produce. (R)Farmers’ supply of sheep from S to S1. (R) 1. Describe what the term equilibrium means in Economics. 2. Explain how a railway crossing a road is similar to market equilibrium in Economics. 3. On each graph below label using dotted lines: a) the equilibrium price (EP) and b) the equilibrium quantity (EQ). (A) Market for iPads 800 (B) S Price 700 $ Price $ Market for bottled water 4.5 S 4.0 3.5 3.0 2.5 2.0 600 500 400 300 200 D 100 1.5 1.0 0.5 D 0 0 05 10 15 20 25 30 35 40 05 10 15 Quantity (000) 20 25 30 35 40 Quantity (000) 4. (A) In Graph A the equilibrium price is $___ and the equilibrium quantity is __________. If the price was $700 then a __________ (or excess supply) would occur as quantity demanded would decrease to ________ iPads and the quantity supplied would increase to ________ iPads. A surplus of ____________ iPads would occur. 5. (B) In Graph B the equilibrium price is $____ and the equilibrium quantity is __________. If the price was $1.50 then a __________ (or excess demand) would occur as quantity demanded would increase to ________ bottles and the quantity supplied would decrease to ________ bottles. A shortage of ____________ bottles would occur. 6. Complete the following table by ticking true or false in the correct column. Situation If the price is above equilibrium then a shortage occurs. True False 7. Match If the price is above equilibrium then a surplus occurs. Shortage is another name for excess demand. Surplus is another name for excess supply. 7. Match the correct terms using arrows. Market equilibrium Shortage Surplus Disequilibrium When there is a shortage or surplus Where quantity supplied = quantity demanded When quantity demanded > quantity supplied When quantity supplied > quantity demanded The market for porches is currently in disequilibrium. The market for iPhones is currently in disequilibrium. 1. Show the market situation of a surplus of 15 Porshes. Fully label. 2. Show the market situation of a shortage of 10 iPhones. Fully label. Market for Porshes Market for iPhones S Price 8 $000 7 Price $ 80 S 70 P6 60 5 50 4 40 3 30 2 20 D 1 D 10 0 05 10 15 20 QD 25 30 0 35 40 05 10 15 20 QS Quantity (ea) 25 30 35 40 Quantity (ea) The market for Air Guitars is currently in equilibrium. The market for Teletubbie DVDs is currently in equilibrium. 3. Draw a market supply curve that results in a market equilibrium price of $40. Fully label. 4. Label the market equilibrium price and quantity. Fully label. Market for Air Guitars Market for Teletubbie DVDs Price 80 $ 70 Price 80 $ 60 60 50 50 40 40 30 30 S 70 20 D 10 0 05 10 15 20 25 30 35 40 20 D 10 0 05 10 15 20 25 30 Quantity (ea) 5. Use the market supply and market demand schedules for silly putty to answer the questions that follow. a) State the equilibrium price. _______________________ 35 40 Quantity (ea) Market Demand schedule for silly putty Price Quantity $ demanded 2.00 35 Market Supply schedule for silly putty Price Quantity $ supplied 2.00 65 b) State the equilibrium quantity. _____________________ 1.50 45 1.50 45 1.00 55 65 1.00 0.50 35 15 c) State the price where a surplus of 30 occurs. _________ 0.50 d) State the price where a shortage of 20 occurs. ________ e) State all the prices where market disequilibrium occurs. _______________________________ The marker is looking for: Get it right! You must: (D) dotted lines showing price and quantities. (A) arrows between QD and QS to show any surplus/shortage. (L) labels on the dotted lines (EP,EQ, QD, QS). equilibrium labelled EP and EQ. dotted lines showing equilibrium. arrows showing any surplus. arrow showing any shortage. labels (EP,EQ,QD,SD). Exam technique: write D.A.L next to your graph: Common mistakes: (D) = dotted lines. (A) = arrows showing any surplus / shortage. (L) = labels. check units when calculating surplus/shortage. do not shade in any surplus or shortage. 1. “Shortage of pies in the tuck shop.” On the graph below 2. With reference to the graph explain the situation show the situation of 30 students wanting pies and the that you have drawn and fully labelled. tuckshop only having 10 pies left in the pie warmer. Shortage = Quantity demanded is than (D) Market for mince pies in the school tuckshop 4.5 quantity supplied. Also called demand (E)Because consumers are demanding S pies 4.0 3.5 tick D 3.0 2.5 A 2.0 L 1.5 D 1.0 while the tuckshop only has of 05 10 15 20 25 30 pies results in a current disequilibrium situation. (R)A disequilibrium situation called a or 0 pies, a situation of of 20 pies occurred. 35 40 3. “Cartoon socks proving popular with teenagers.” On the graph below use dotted lines and labels to show the equilibrium price (EP) and equilibrium quantity (EQ). 4. Use your completed graph to answer the questions below. a) State the equilibrium price. $________________ Market for cartoon socks b) State the equilibrium quantity. _____(check units!) Price $ 80 70 S 60 tick D 50 40 A 30 L 20 D 10 0 1 2 3 4 5 6 7 8 Quantity (000) c) Use a blue highlighter to shade in all the prices that would result in a surplus of cartoon socks being created. d) Use a yellow highlighter to shade in all the prices that would result in a shortage of cartoon socks being created. e) State the price that would result in an equilibrium market situation. __________________ f) State all the prices that would result in a disequilibrium market situation. ________________ Market reaction to shortage / surplus Market reaction to a surplus Market reaction to a shortage Market for Burgers Market for Petrol S Price $ S Price $ Terms to memorise Market situation – either equilibrium (QD=QS) or disequilibrium (shortage QD>QS or surplus QS>QD). EP EP D Q D Q E D s Q Quantity Surplus occurs at current price. Firms lower price to clear stock. Quantity demanded increases and quantity supplied decreases. Equilibrium is restored at Eq, Ep. Market equilibrium – the price and quantity where the quantity demanded equals quantity supplied. Q S Q E Q D Market reaction / equilibrium restored – as price changes, how does QD and QS change? Quantity Shortage occurs at current price. Consumers bid up price so don’t miss out. Quantity demanded falls and quantity supplied increases. Equilibrium is restored at Eq, Ep. Shortage – quantity demanded is more than quantity supplied (excess demand). Surplus – quantity supplied is more than quantity demanded (excess supply). (a) When the current price is above the E______________ P________ a S___________ occurs. F_________ lower their P_________ to C________ S_________. As a result, consumers Q_____________ D__________ increases (follows the L____ of D__________), and producers Q______________ S__________ falls (follows the L_____ of S_________). This process continues until the E____________ is restored at the price where quantity D________ is the same as quantity S________. The O__________ occurs when there is a shortage. (b) State the term that describes situation when quantity demanded is greater than quantity supplied. (c) State market situation that occurs when quantity supplied is greater than quantity demanded. (d) Use a double ended arrow to label the surplus that occurs at the current price on the market for burgers on the graph above. (e) Show and label the shortage that occurs at the current price on the market for petrol graph above. (f) State why quantity supplied increases in response to a shortage. (g) What is the first thing that happens when there is a shortage in a market? (h) What is the first thing that happens when there is a surplus in a market? (i) State the term used to describe the situation when the market is not at equilibrium. (j) Explain how a market reacts to a shortage. 1a. Show the current price of $30 on Graph A (label fully using a solid line and label it “current price”). 1b. Show the current price of $200 on Graph B (label fully using a solid line and label it “current price”). (A) Market for Blu Ray Discs Price 40 $ (B) Market for Surfboards Price 800 $ 700 S 35 30 600 25 500 20 400 15 300 10 0 200 D 05 1 2 3 4 5 6 7 S D 100 8 0 Quantity (000) 1 2 3 4 5 6 7 8 Quantity (000) 2a. Use a double headed arrow and label to show the market situation that occurs on Graph A at the current price. 2b. Use arrows and labels to show how the market reacts to the market situation on Graph A. 3a. Use a double headed arrow and label to show the market situation that occurs on Graph B at the current price. 3b. Use arrows and labels to show how the market reacts to the market situation on Graph B. 4. Use your competed graphs above to complete the following. (A) In Graph A a ____________ currently exists at the current price. This means that ______________ supplied is _____________ than quantity ______________. Firms will ___________ the ____________ to clear excess stock. As a result, quantity __________ will ____________ (following the law of demand) as the blu-ray discs become relatively more ____________. At the same time quantity ___________ by firms will ____________ (following the law of supply) as the blu-ray discs become relatively less ___________ to produce. This process continues until the ___________ is restored. (B) In Graph B a ____________ currently exists at the current price. This means that ______________ demanded is _____________ than quantity ______________. Consumers who think they will miss out will bid _____ the price. As a result, quantity __________ will ____________ (following the law of demand) as the blu-ray discs become relatively less ____________. At the same time quantity ___________ by firms will ____________ (following the law of supply) as the blu-ray discs become relatively more ___________ to produce. This process continues until the ___________ is restored. How to show market reaction to shortage: S 1. Draw a horizontal line across at the current price (below equilibrium). 2. Draw a dot where the current price line intersects the supply curve and draw a dotted line down. Label this line QS. 3. Draw a dot where the current price line intersects the demand curve and draw a dotted line down. Label this line QD. EP1 4. Draw an arrow between QS and QD and label this “shortage.” Current price 5. Consumers bid up price so draw an arrow on the price axis from the current price line to the equilibrium. Draw an arrow up the demand 4.curve fdfdfdfdf (since it’s a price change) from the QD dot to the equilibrium. Firms increase quantity supplied as relatively more profitable so draw an arrow up the supply curve from the AS dot to the equilibrium. D QS Q shortage QD Practice 1: Show market reaction to a shortage Practice 2: Show how the equilibrium is restored following a shortage S P S P D D Q Q How to show market reaction to surplus: S 1. Draw a horizontal line across at the current price (above equilibrium). 2. Draw a dot where the current price line intersects the supply curve and draw a dotted line down. Label this line QS. 3. Draw a dot where the current price line intersects the demand curve and draw a dotted line down. Label this line QD. Current price EP1 4. Draw an arrow between QS and QD and label this “surplus.” 5. Producers lower price so draw an arrow on the price axis from the current price line to the equilibrium. Draw an arrow down the demand curve (since it’s a price change) from the QD dot to the equilibrium. Firms decrease quantity supplied as relatively less profitable so draw an arrow down the supply curve from the AS dot to the equilibrium. D QD Q surplus QS Practice 3: Show market reaction to a surplus Practice 4: Show how the equilibrium is restored following a surplus S P S P D Q D Q The marker is looking for: Get it right! You must: (D) define the market situation (shortage or surplus). (E) explain why consumers bid up price/firms lower price then explain why quantity demanded and quantity supplied changes. (R) refer to specific prices and quantities in the question/graph. market situation defined. price change explained. changes in quantity demanded and quantity supplied explained. reference to price and quantities. Exam technique: write D.A.L next to your graph: Common mistakes: (D) = dotted lines (for EP,EQ, QD,QS). (A) = arrows showing equilibrium being restored. (L) = labels (EP,EQ, QD,QS). 1. “Surplus of pizza”. On the graph below show how the market responds to a current price of $4 per pizza. check units (ooo) means thousands. do not shade in any surplus or shortage. 2. With reference to the graph explain how the market reacts to the current market situation. (D)Surplus = Quantity supplied is Market for Pizza than quantity demanded. S 4.5 (E)Because firms lower the 4.0 tick D 3.5 3.0 2.5 A 2.0 L 1.5 D 1.0 0 05 10 15 20 25 30 35 40 quantity demanded and quantity to clear stock (relatively more affordable) decreases (relatively less profitable). Process continues until equilibrium is restored. (R)Quantity demanded increases from to and quantity supplied decreases from to until equilibrium is restored at $ and pizzas. 3. “Shortage of potatoes”. On the graph below show 4. With reference to the graph explain how the how the equilibrium is restored following a price of $2kg. equilibrium is restored. (D)Shortage = Quantity demanded is Market for Potatoes than Price $ quantity supplied. 8 (E)Because consumers bid up the S 7 tick D 6 5 A 4 3 L 2 0 1 2 3 4 5 6 7 and quantity (relatively more profitable) decreases (less affordable). Process continues until there is no surplus or shortage. (R)Quantity supplied increases from D 1 quantity supplied 8 Quantity (000kg) and quantity demanded decreases from until equilibrium is restored at $ and to to kgs. Show the effect of an increase in demand (practise yourself) 1. Show the effect of an increase in demand on graph 1: S a) label the original equilibrium price (P) and quantity (Q) with dotted lines. b) draw and label the new demand curve – to the right (D1). c) draw two arrows pointing from the old to the new curve. d) label the new equilibrium price (P1) and quantity (Q1) with dotted lines. e) draw an arrow from the old equilibrium price to the new equilibrium price. f) draw an arrow from the old equilibrium quantity to the new equilibrium quantity. D 2. As a result of an increase in demand, the equilibrium price ____________ from P to P1 and the equilibrium quantity ________________ from Q to Q1. Show the effect of a decrease in demand (practise yourself) 1. Show the effect of a decrease in demand on graph 2: S a) label the original equilibrium price (P) and quantity (Q) with dotted lines. b) draw and label the new demand curve – to the left (D1). c) draw two arrows pointing from the old to the new curve. d) label the new equilibrium price (P1) and quantity (Q1) with dotted lines. e) draw an arrow from the old equilibrium price to the new equilibrium price. f) draw an arrow from the old equilibrium quantity to the new equilibrium quantity. D 2. As a result of a decrease in demand, the equilibrium price ____________ from P to P1 and the equilibrium quantity ________________ from Q to Q1. Show the effect of an increase in supply (practise yourself) 1. Show the effect of an increase in supply on graph 3: S a) label the original equilibrium price (P) and quantity (Q) with dotted lines. b) draw and label the new supply curve – to the right (S1). c) draw two arrows pointing from the old to the new curve. d) label the new equilibrium price (P1) and quantity (Q1) with dotted lines. e) draw an arrow from the old equilibrium price to the new equilibrium price. f) draw an arrow from the old equilibrium quantity to the new equilibrium quantity. D 2. As a result of an increase in supply, the equilibrium price ____________ from P to P1 and the equilibrium quantity ________________ from Q to Q1. Show the effect of a decrease in supply (practise yourself) 1. Show the effect of a decrease in supply on graph 4: S a) label the original equilibrium price (P) and quantity (Q) with dotted lines. b) draw and label the new supply curve – to the left (S1). c) draw two arrows pointing from the old to the new curve. d) label the new equilibrium price (P1) and quantity (Q1) with dotted lines. e) draw an arrow from the old equilibrium price to the new equilibrium price. f) draw an arrow from the old equilibrium quantity to the new equilibrium quantity. D 2. As a result of a decrease in supply, the equilibrium price ____________ from P to P1 and the equilibrium quantity ________________ from Q to Q1. Effect of a sales tax Supply decreases 1 (S to S ) as the tax increases firm’s costs of production.. The amount of the sales tax is the vertical distance between the two supply curves. Totals Terms to memorise Price paid by consumers rises C from P to P . Price received by producers falls P from P to P . Quantity bought 1 falls Q to Q . Quantity sold falls 1 from Q to Q . Total spending decreases from C 1 P × Q to P × Q . Government imposes a per unit sales tax to raise revenue/decrease consumption. Government collects tax revenue C P 1 (P - P × Q ). Total revenue decreases from P 1 P × Q to P × Q . Sales tax S1 S1 S S government revenue P C total producer revenue after P P new total consumer spending after P P Revenue – price multiplied by quantity sold. Profit – revenue minus expenses. Return to owner. Consumer spending – price paid multiplied by quantity purchased. Tax revenue – amount of tax per unit sold multiplied by quantity sold. Revenue for the government. C P PP D Q1 Q Indirect tax – a tax collected by a third party on behalf of the government. Eg. Sales tax. D Q1 Q Sales tax – same as indirect tax. Also called excise tax. (a) A sales tax (also known as an I_________ T_____) might be imposed by the G_________ to raise R___________ or to reduce C_____________ by consumers. The sales tax I___________ a firm’s C______ of P____________ so the supply curve moves V_________ and to the left by the A________ of the tax. The new reduced quantity sold is Q_ and the new price paid by consumers is P_ while the new price received by firms is P_. The government collects T___ R_________. This is calculated: P_ minus PP multiplied by Q_. (b) Describe why supply decreases when the government imposes a sales tax. (c) State what the vertical distance between the supply curves represents. (d) Identify the letter from the graph that illustrates the new price paid by consumers with the sales tax. (e) Identify the letter from the graph that illustrates the new price received by firms with the sales tax. (f) Identify the letter from the graph that illustrates the new quantity sold with the sales tax. (g) Describe two reasons the government may impose a sales tax on a particular good or service. (h) State the formula used to calculate the change in total consumer spending. (i) State the formula used to calculate the change in total producer revenue. (j) State the alternative name for a sales tax. (k) Approximately what percentage of the tax is paid by consumers? Producers? ’ Instructions: S1 1. Label equilibrium price as old price to consumer/producer and equilibrium quantity as old quantity with dotted lines and labels. S 2. Choose 3 points on supply curve: one near the bottom of the supply curve (Huey), one at equilibrium (Duey) and one near the top of the supply curve (Luey). 3. Draw an arrow up from each point by the dollar amount of the tax (use price scale), marking points at the top. 4. Sketch a new curve through these points and label it S1. 5. At the new equilibrium draw a dotted line down. label Q1. PC P OLD P P 6. Where Q1 dotted line cuts old supply curve draw a dotted line P across to price axis and label “price producer”(P ). D 7. At the new equilibrium draw a dotted line across to the price C axis and label this “price consumer pays” (P ). 1 Q Practice 1 OLD Q Practice 2 S S D D 1. On your completed practice 1 graph above: S1 a. Shade in total consumer spending before tax S b. Shade in total producer revenue before tax 2. On your completed practice 2 graph above: a. Shade in total producer revenue after tax b. Shade in total tax revenue to the government c. Total consumer spending after tax PC P OLD PP 3. On the graph provided (right): D a. Shade in the change in producer revenue Q1 QOLD - Resources Resources are inputs used in the production process. Natural resources Human resources Capital Resources Raw materials that occur naturally in the environment (rent) People who work in production. Can be labour or entrepreneurs (wages) Man made goods used to make other goods (interest) Examples Examples Examples Water, wind, soil, animals, plants, sunlight, mineral deposits, oil Labour: driver, workers Entrepreneur: business owner, manager Machines, computers, tools, factories, buildings, vehicles, electricity Resource use: Dairy farming Natural resources: cows, grass, water, superphosphate fertiliser. Human resources (labour): farm worker, tractor driver. Human resources (entrepreneurship): farm owner, farm manager. Capital resources: milking shed, tractor, fences, milk truck, electricity. Terms to memorise Resources – inputs or raw materials used in production. Natural resources – gifts of nature. Human resources – people working to produce output. Labour – physical human effort. Entrepreneurship – risk taker who organises the factors of production to produce output. Capital – man made goods used to make other goods. Factor payments – costs to firms for using resources. Eg. rent, wages, interest. (a) R___________, also known as I________ are factors of production. They are R_____ M____________ used by F_______ to make G________ and S__________. Resources are divided into T_________ main types; N_________ resources are raw materials that occur naturally. H__________ resources are P_______ and are divided into two sub categories, L__________ resources which is P_________ H___________ E_________ and E____________ which is the O____________ or M_____________ of a firm. C_________ resources are M_____ M______ G________ used to make other G________ eg M__________. (b) Define the term “resources”. (c) State the three main types of factors of production/inputs. (d) State the two types of human resources used in production. (e) Describe why cows on a dairy farm are a natural resource. (f) Identify the type of resource that a shop assistant would be classified as. (g) Describe why a hammer would be classified as a capital resource. (h) Describe five resources that would be used in the production of a burger. 1. Complete the table by classifying the resources in the box below. builder delivery truck soil rain plumber author laptop checkout operator coal lawyer factory accountant wool Natural Human gold sewing machine Capital 2. Match the correct terms using arrows. Gifts of nature Physical human effort Inputs in the production process Goods used to make other goods Organises the factors of production Capital resources Natural resources Resources Entrepreneurship (human) Labour (human resource) Chainsaw Crude oil Shop worker Manager Factors of production 3. Close your eyes and imagine you were the owner of a blueberry farm. Complete the table below by identifying three examples of each type of resource that would be required to produce blueberries. Natural Labour Human Entrepreneurship Capital 4. Read the newspaper advertisements and complete the table that follows. FURNITURE-MAKING BUSINESS FOR SALE This business must be sold. Situated on a one acre property it includes a 1000m2 building with five furniture making machines, an office, own well for water, pump house and is situated for good all day sun. Currently operated by a manager and office staff, two trained carpenters and a delivery driver. Identify examples of each type of resource from the advertisement above. Natural Human Labour Entrepreneurship Capital Overview Terms to memorise A government, city council, school board of trustees etc. has to make an economic decision due to a resource (eg. funding) being scarce. Different groups who will be affected (eg. may or may not benefit from different possible options) have different viewpoints on which option/compromises should be chosen depending on their values. There are costs and benefits of each option. Scarce resources – not enough relative to demand for them. Limited means – time, skills or income. Values – strongly held beliefs. Part B 1. Identify the options that different groups want and suggest a compromise they might be prepared to make. 2. Identify the main factors you will consider when evaluating each option/compromise. 3. Identify and explain the major costs and benefits of each option/compromise. 4. Rank the options/compromises. 5. Recommend and justify the best option. Part A 1. Identify the scarce resource / limited means. 2. Describe the economic decision that must be made. 3. Collect / process information about the different options. Scarce resources / Economic decisions (PART A) A hockey club has a $100,000 grant that they can spend on improvements. The grant is a scarce limited resource as the club members have more options to spend the money than the grant will cover. The newer club members want to buy a new all weather turf. The older club members want new clubrooms. Younger players want lighting for winter. 1. Limited means Resources are scarce as they are limited relative to the demand for them. 2. Economic decisions The club needs to make a choice from the various options as to how the grant should be spent. Resources can be time, skills or money. This could involve a compromise where all the groups give up some of what they want so that all groups are satisfied to some degree. In this example the scarce resource is limited money, the $100,000 grant. 3. You need to collect / process information from at least two different groups that want the money spent on different options. Viewpoint 1: new turf (new clubbies) Viewpoint 2: new clubrooms (older clubbies) Viewpoint 3: outdoor lighting (young clubbies). Information on different viewpoints can be collected by interviews, newspaper articles, surveys, etc. Values / Compromises (Part B) Compromise – to make a deal where each group gives up something that they want. Costs and benefits – advantages and disadvantages. Evaluation – an assessment as to the costs and benefits of each option. Recommendation– best option overall. Terms to memorise Grant – donation or allocation of funding for a specific project. Scarcity – limited in relation to demand. Economic decisions – choices made on how resources are used. Compromise – to make a deal where each group gives up something that they want. Viewpoints – different options wanted by different people. Options – different possibilities. Choices – decisions made. Terms to memorise Values – strongly held beliefs. Values Values are perspectives that people hold. They are strongly held beliefs and are often influenced by our upbringing, religion, culture, age, or gender. They are assumptions that determine our expectations and actions. They explain why we do what we do and are used when we make decisions. Eg. good manners, sustainability, helping others, healthy living etc. Compromises Finding a way to get people with different wants to mutually agree on an option they will accept. Each group gives up part of what they would like so that one option can be agreed upon. For example: The hockey club could spend some money renovating the clubrooms, buy new turf for half the hockey pitches and put up lighting for one of the hockey turfs. Each group gets part of what they want. Examples of values – honesty, healthy eating, loyalty, respect, teamwork, freedom, tolerance, reliability, family, fairness, sharing. Compromise – to make a deal where each group gives up something that they want. The local City Council has some surplus land available that they would like to use for a facility for locals. A survey showed ratepayers were keen on the following options: 1. Teenagers wanted a skateboard park. 3. Young families wanted a children’s playground. 2. Elderly people wanted a library. 4. Older families wanted a swimming pool. Teenagers responded, “We want a place to hang out with our friends and play safely on our skateboards. We would consider a smaller skateboard park and an adventure playground.” Elderly people said, “We would like better access to books and relax in beautiful surroundings. We would consider a smaller library and a place to swim.” Young families said, “We want a safe place for our children to play and socialise with other children. We would also consider a smaller playground and a library that had a good children’s section.” Older families responded, “We would like a pool so we can increase our fitness. We would consider a smaller pool and a playground as long as the playground had a BBQ area.” 1. Identify the limited means/scarce resource in this situation. _______________________________________ 2. Describe the economic decision the City Council must make. ______________________________________ 3. Explain how the economic decision is affected by limited means and/or scarce resources. _______________ 4.Complete the table below by using the information in the resource material above to show the different viewpoints of different groups affected by the council’s decision. Person or group Teenagers Young families Elderly people Older families What should the land be used for? Why do they have this viewpoint? How could they What options be affected by are they this decision? proposing? (list their values) (costs/benefits) What compromises are they willing to make? Identify and explain the options and compromises (PART B) Identify the possible options on how the scarce resource could be used. Eg. The Hockey Club has a $100,000 grant to spend on improvements. Viewpoint 1: new turf (wanted by new club members). Viewpoint 2: new clubrooms (wanted by older club members). Viewpoint 3: outdoor lighting (wanted by young club members). Terms to memorise Scarce resources – not enough relative to demand for them. Limited means – time, skills or money. Values – strongly held beliefs. Suggest a possible compromise Factors used to evaluate options Identify the main factors you will consider when evaluating each option or compromise. Examples of these factors could include: The hockey club could spend $50,000 on renovating the clubrooms instead of building completely new clubrooms, or buy new turf for half the hockey pitches (costing $40,000) rather than all of them. This means the club still has some funding available to put up lighting for one of the hockey turfs ($10,000). the number of club members benefitting. how well it fits the club’s goals. Give weightings to the importance of each factor based on how significant they are. Eg. the number of club members who would benefit may have a higher weighting than club goals. Each group of club members get part of what they want. Identify and explain the costs and benefits (PART B) Identify and explain the major costs (disadvantage/ negative factor) and benefits (advantage/positive factor) of each option and the compromise by considering the factors and how each group feels about them. You need to provide enough evidence for each cost and benefit so the options can be ranked and the compromise can be considered. Major benefits (example) New club rooms: Nicer facilities will encourage new member to join the club. Facilities can be hired out to gain revenue for the club. Major costs (example) New club rooms: Larger building footprint involves the removal of some car parks. Artificial turf: Requires ongoing maintenance. Can cause injuries to players. Artificial turf: Games can be played all year round and in bad weather. Can be hired out to other groups to gain revenue for the club. Lighting: Additional ongoing costs of maintenance and increased electricity will have to be paid for by the club in the future. Lighting: Games and practices can be played at night so facilities can be used more often especially during winter. Compromise option: Renovated rooms will be too small to hire out. Doing lighting and turf upgrades in two stages is more expensive than all at once. Compromise option: improvements to the club benefit everyone. Rank the options and compromises (Part B) Ranking Put the various options and compromises in order from best to worst based on your cost and benefits. Ranking (example) st 1 choice: renovated clubrooms and one lighted artificial turf. 2 Ranking Your ranking must be consistent with your costs and benefits analysis. nd best choice: new clubrooms. rd 3 best choice: artificial surface for all turfs. th 4 best choice: outdoor lighting for all turfs. Compromise – to make a deal where each group gives up something that they want. Costs and benefits – disadvantages and advantages. Evaluation – an assessment as to the costs and benefits of each option. Recommendation– best option overall. Terms to memorise Grant – donation or allocation of funding for a specific project. Scarcity – limited in relation to demand. Economic decisions – choices made on how resources are used. Compromise – to make a deal where each group gives up something that they want. Viewpoints – different options wanted by different people. Options – different possibilities. Choices– decisions made. Terms to memorise Ranking – put in order best to worse. Costs – negative factors or disadvantages of an option. Benefits – positive factors or advantages of an option. First choice – best option overall. The local City Council has the following goals and objectives: “We want to make the city a more liveable and safe place for people to work, rest and play.”As a result the Council is using the following guidelines in making the decision. Priority 1. The facility needs to benefit as many ratepayers as possible. Priority 2. A facility that will help improve the fitness of ratepayers has priority. Priority 3. A facility that provides safer and more accessible recreation opportunities is important. A council commissioned report included the following section: “It is expected a skateboard park will create noise for local residents but will keep the youth off the streets and will help them keep out of trouble. The swimming pool will increase the fitness and health of everyone in the community but will have significant ongoing maintenance costs. The library will have some ongoing running costs but will keep people’s minds active and engaged. The playground will help young families socialise and help keep children fit and healthy but will only be used by a relatively small proportion of the local population.” 1. Identify the main factors that will be used to evaulate the options. _________________________________ 2. Suggest two possible compromises using the information on page 195. Compromise 1: Compromise 2: 3.Complete the table below by using the information in the resource material above and your own ideas to state the major costs and benefits of each option and the two compromises you stated above. Option large skateboard park Major costs Major benefits large playground large library large swimming pool Compromise 1: Compromise 2: 4. Rank the options and compromises above based on their costs and benefits. 1st choice 2nd choice 3rd choice 4th choice 5th choice 6th choice Identify the scarce resource: Describe the choice that must be made: Collect information from groups with differing viewpoints: Group 1 name: Viewpoint: Group 2 name: Viewpoint: Group 3 name: Viewpoint: Group 4 name: Viewpoint: Identify possible options and compromises from the different groups: Possible Option 1: Possible Option 2: Possible Option 3: Possible Option 4: Possible Compromise Option A: Possible Compromise Option B: Identify 1-3 costs (negatives) and identify 1-3 benefits (positives) for each option and compromise in detail: Options Costs Costs Weightings Benefits Benefits Weightings 1. 2. 3. 4. 5. 6. Rank the options and compromises (be consistent with your cost-benefit analysis above). Ranking: Best to Worst 1st 2nd 3rd 4th 5th 6th Options Recommend the 1st option: _______________________ Justify your recommendation by referring to your cost-benefit analysis: Justify your recommendation by explaining your weightings given to the various factors: TASK TWO A. Identify the options that the different people suggest and the compromises they are prepared to make. Possible option People who most favour this option 1 2 3 4 Compromise 1: Compromise 2: B. Identify the main factors you will consider when evaluating each option and compromise. Main factors (priorities) considered by the decision makers Weightings of relative importance of each factor/priority (high, medium, low) 1 2 3 C. Identify and explain the major costs and benefits (positive and negative factors) of each option and compromise by considering the factors (priorities) and how each person feels about them (ie. give them weightings of importance). Options 1 2 3 4 compromise 1 compromise 2 Major costs (negatives) and their weightings Major benefits (positives) and their weightings - Interdependence within the producer sector Interdependence Two way reliance. Firms in one different productive sector rely on firms in the other productive sectors. Example: primary sector firms rely on secondary sector firms and secondary sector firms rely on primary sector firms. Producer Sector – All individual firms together Primary Sector Secondary Sector Tertiary Sector Firms that harvest or extract natural resources Firms that process or manufacture goods Firms that provide services Eg. agriculture forestry horticulture. Eg. electronics, vehicles, food processing. Eg. marketing, finance, shops, communication, legal services. Dairy farmer Terms to memorise Interdependence – mutual reliance. Milk factory The dairy farmer (primary sector firm) needs the milk factory to buy their milk solids. The milk factory (secondary sector firm) needs the farmer to sell them milk solids so they can process it and sell milk. The farmer and the milk factory need the milk trucking firm (tertiary sector) to move their milk and the milk truck firm needs milk to transport to make a profit. This is mutual reliance. Producer Sector – private firms manufacturing goods. Productive sector – primary, secondary or tertiary sector: all within the producer sector. Primary Sector – firms that extract raw (natural) resources. Eg. mining, farming fishing etc. Secondary Sector – firms that process raw (natural) resources into finished goods. Eg. milk plants, breweries, factories etc. Tertiary Sector – firms that provide services Eg. tourism, transport, builders, shops etc. (a) T____ way reliance called I_________________ in Economics is when two firms are R____________ on each other for their success. There are T_______ main types of productive S_________ that together make up the P_____________ S_________ in the circular flow model of the E____________. F_________ in the P_________ sector E_________ natural resources. Examples include M__________ and F__________. S_____________ sector firms P___________ or M______________ the N_________ resources into goods. F______ in the T________ sector provide S_________ to other firms. Firms in each sector are I___________. (b) Define interdependence. (c) Describe what firms in the primary sector do. (d) State what firms in the secondary sector do. (e) Describe what firms in the tertiary sector do. (f) Describe how a timber mill and a forest owner are interdependent. (g) Describe the difference between interdependence and independence. (h) Describe the difference between sectors in the circular flow and productive sectors. 1. Match the correct terms using arrows. Interdependence Tertiary sector Productive sectors Primary sector Secondary sector Firms that process or manufacture goods Mutual reliance Firms that extract natural resources Three sectors within the producer sector Firms that provide services Criminal and lawyer Primary, secondary, tertiary. Accountant Vegetable canning factory Vegetable grower 2. Complete the table below identifying examples of firms in each productive sector. Primary Secondary Tertiary 3. Complete the table below by identifying the productive sectors each firm operates in (circle). Firm Bill’s Hardware SD Engineering Lee’s Lawyers Olly’s Orchard Tim’s Towtrucks Sector P S T P S T P S T P S T P S T Firm PB Oil Refinery Ken’s Car Repairs Kate’s Cupcakes Tom’s Tutoring Bob’s Blueberries Sector P S T P S T P S T P S T P S T 4. Describe why a supermarket needs a soft drink manufacturer. 5. Describe why a soft drink manufacturer needs a supermarket. 6. State the economic term used to describe the relationship you described in questions 4 and 5 above. 7. Identify three examples of workers that could be employed by firms operating in each productive sector. The first one has been done for you as an example. Primary tractor driver Secondary sawmill operator Tertiary checkout operator 8. Trademe sellers and courier firms are interdependent. Describe why. Impact of an event on a sector Government decreases income tax Household Sector Disposable income increases as less taken by government. Demand for goods and services rises. More income left over to save. Can buy more luxuries and less inferior goods. Producer Sector Sales, revenue and profits increase as consumer spending increases. Confidence to invest increases. Increase in production. Hire more workers and purchase capital goods. Financial Sector Investment loans to firms increase. Profits increase. Require more deposits from households to lend to firms. Household savings in banks rise as their disposable incomes increase. Government Sector Overseas Sector Income tax revenue decreases. However, GST and company tax increases as spending increases. Less revenue available to spend on transfers and subsidies. Producer Sector Financial Sector Government Sector Disposable income – household income after tax paid. Luxuries – high quality versions. Inferior goods – low quality versions (cheaper) of goods. Confidence – predictions of future sales and revenue. Investment – firms borrowing to purchase capital goods. Importers’ sales, revenue and profit increases as consumer spending rises as disposable incomes increase. Increase production. Hire more workers and purchase capital goods. Company tax – direct tax paid by firms on their profit. Increase in production More employment. Higher incomes. Pay more income tax. Work longer hours. Save more. Greater variety of goods available to purchase. Production increases. Sales, revenue and profits rise. Demand for raw materials increases. Employ and train more staff. Investment in capital goods rises. More investment loans. Investment loans to firms increase. Profits increase. Require more deposits from households to lend to firms. Household savings in banks rise as their incomes increase. Income tax revenue increases as more jobs available and people working longer hours. GST and company tax also increases as spending increases. Less spent on transfers. Importers’ sales, revenue and profit increases as consumer Overseas Sector Income tax – direct tax paid on income to government. Transfers – welfare payments to households by government. Impact of an event on a sector Household Sector Terms to memorise spending rises as incomes increase. Exports increase as firms sell more goods overseas. Export receipts increase. (a) State an impact of an increase in income tax on households. (b) Describe an impact of an increase in income tax on producers. (c) State an impact of an increase in income tax on the government. (d) State an impact of a decrease in production on the overseas sector. (e) Identify an impact of a decrease in production on the producer sector. (f ) State an impact of a decrease in production on the household sector. Terms to memorise Savings – income not spent. Disposable income – household income after tax paid. Revenue – price × quantity sold. Profit – revenue - expenses. Investment – firms borrowing to purchase capital goods. Transfers – welfare payments to households by government. Company tax – direct tax paid by firms on their profit. Export receipts – revenue earned from exports. 1. Match the correct terms using arrows. Interest rates rise Production increases Income tax rates fall Decrease in tourism GST increases Government revenue increases Firms’ profits increase Household deposits in banks increase Firms lay off staff Household disposable incomes increase Can employ more workers Can buy more goods and services Banks have more funds to lend Household incomes decrease Can give teachers a pay rise 2. Complete the table below by identifying two sectors affected by the following events. Event Impacted sector 1 Impacted sector 2 Wages increase Company tax rate falls Transfers increase 3. Describe how an increase in household incomes would affect each sector of the economy Sector Producer Describe Impact Describe a money flow that would increase Government Households Overseas Financial 4. Describe how an increase in exports would affect each sector of the economy. Sector Producer Describe Impact Describe a real flow that would increase Government Households Overseas 5. For each of the following events identify and predict a possible cause beyond the control of the sector upon which the event impacts directly. The first one has been done for you. (a) Government revenue decreases Decrease in exports so firms export receipts and profits fall. Company tax paid to government decreases. This results in a decrease in government revenue. (b) Household savings increase (c) Imports increase (d) Investment spending by firms decreases Examples of events: The government reduces income tax rates, overseas demand for New Zealand exports increases, financial institutions increase interest rates, the government increases subsidies to firms, demand for your firms products decreases, the cost of imported raw materials increases, consumer savings increase, employment increases, company tax rates decrease, government increases the rate of GST. Craig is a dairy farmer in Southland. He received a letter from his bank saying interest rates are increasing. Step 1: Impact: Identify and explain the impact of the event on your firm. State the event: Explain the impact on Craig the dairy farmer: (D) Interest rates = (E) Because (E) (E) (R) Real flows: Money flows: Step 2: flow on effects on other firms: Identify and explain the flow on impact of the effect on your firm on other firms in the producer sector (primary, secondary and tertiary productive sectors).Refer to the productive sectors chart or diagram you completed. Identify and explain the flow on impact of the effect on your firm on other firms (eg. Secondary Sector). (D) Secondary Sector = (E) Because (E) (E) (E) (R) Real flows: Money flows: Identify and explain the flow on impact of the effect on your firm on other firms (eg. Tertiary Sector). (D) Tertiary Sector = (E) Because (E) (E) (E) (R) Real flows: Money flows: Step 3: Flow on effects on other sectors: Identify and explain the flow on impact of the effect on your firm on other sectors in the circular flow model (eg. Household, Government, Financial and Overseas Sectors). Refer to the flows in the circular flow model you completed). Identify and explain the flow on impact of the effect on your firm on another sector (eg. Government Sector). (D) Government Sector = (E) Because (E) (E) (E) (R) Real flows that increase/decrease: Money flows that increase/decrease: Identify and explain the flow on impact of the effect on your firm on another sector (eg. Household Sector). (D) Household Sector = (E) Because (E) (E) (E) (R) Real flows that increase/decrease: Money flows that increase/decrease: Identify and explain the flow on impact of the effect on your firm on another sector (eg Overseas Sector). (D) Overseas Sector = (E) Because (E) (E) (E) (R) Real flows that increase/decrease: Money flows that increase/decrease: Get it right! You must: (D) define the event and the sectors involved. (E) explain the impact of the event in detail. Explain the flow-on effects of the event on two sectors. (R) make specific reference to specific real and money flows in the circular flow diagram. The marker is looking for: explain the impact on one sector and explain the flow on effects on other sectors. Make specific reference to money and real flows in the CFM. Exam technique: write D.E.R in the margin: Common mistakes: (D) = define key terms. (E) = explain impact and flow-on effects. (R) = relate to the circular flow model (CFM). not defining the event. forgetting to explain money and real flows. not explaining flow-on effects on two sectors. Unemployment is increasing according to the latest statistics released by the Department of Labour. 1. Describe how the increase in unemployment will affect the Household Sector. Mention: impact on income impact on spending impact on savings 2. Explain the flow-on effects that an increase in unemployment will have on the Producer Sector. (D)Producer Sector = (E)Because (R)Real flows: Money flows: Mention: impact on profits impact on sales impact on investment spending impact on company tax paid impact on business confidence 3. Explain the flow-on effects that an increase in unemployment will have on the Government Sector. (D)Government Sector = (E)Because (R)Real flows: Money flows: Mention: impact on income tax revenue impact on company tax revenue impact on GST revenue impact on transfer payments spending impact on spending 4. Explain the flow-on effects that an increase in unemployment will have on the Overseas Sector. (D)Overseas Sector= (E)Because (R)Real flows: Mention: Money flows: impact on imports and import payments impact on importer profits impact on exports and export receipts impact on exporter profits Sam’s shop sells healthy fruit shakes. Sam, the owner reads in the newspaper that “There is an increase in consumer demand for healthy fruit shakes.” Sam wonders how other producers such as the apple growers and fruit processing factory she buys her shakes from will be affected. She also thinks about how other sectors in the economy will be affected by this increase in demand. Assessor’s use only gfgf Identify the productive sector the apple growers, shakes factory and Sam’s shop operate in. (a) A Apple growers: Shake Factory: Sam’s Shake Shop: Fully explain how the change in consumer demand will affect the Producer Sector and explain the flow on effects the change in consumer demand will have to the other sectors and firms identified above. (b) Explain the affect of increased consumer demand on the Producer Sector. (D) (E) (R) (c) M Explain the affect of increased consumer demand on apple growers and the shake factory. (D) (E) (R) (d) M Explain the flow-on effects of increased consumer demand on the Government Sector. (D) (E) (R) (e) M Explain the flow-on effects of increased consumer demand on the Financial Sector. (D) (E) M (R) My grade for this section: (circle) ACHIEVED MERIT EXCELLENCE A=1A M=1A+3M E=1A+4M