VCE Economics cheat sheet

Law of demand: as price rises, quantity demanded falls, ceteris paribus; the demand curve slopes downward.

Price elasticity of demand = % change in quantity demanded / % change in price; |PED| > 1 elastic, < 1 inelastic, = 1 unit elastic.

Demand shifts when non-price factors change (income, tastes, prices of substitutes and complements, expectations); only a price change moves along the curve.

Law of supply: as price rises, quantity supplied rises, ceteris paribus; supply shifts with input costs, technology, taxes and subsidies, and number of sellers.

Market equilibrium occurs where quantity demanded equals quantity supplied; a price above equilibrium creates a surplus, below creates a shortage.

Total revenue = price x quantity; revenue rises with a price increase only when demand is inelastic.

Opportunity cost is the value of the next best alternative forgone; every choice involving scarce resources carries one.

Marginal utility diminishes as consumption of a good increases, so consumers maximise satisfaction where marginal utility per dollar is equal across goods.

Business costs: total cost = fixed cost + variable cost; profit = total revenue - total cost; firms produce where marginal revenue equals marginal cost.

Unemployment rate = (number unemployed / labour force) x 100, where the labour force = employed + unemployed.

Participation rate = (labour force / working-age population) x 100.

Types of unemployment: cyclical (demand-deficient), structural (skills mismatch), frictional (search), seasonal, and hidden.

Inflation rate measured by percentage change in the Consumer Price Index (CPI) between periods; CPI is a weighted index of a representative basket.

Real values = nominal values adjusted for inflation; real interest rate is approximately nominal rate minus inflation rate.

Material living standards are measured by real GDP per capita; non-material living standards include health, education, leisure, and environmental quality.

The business cycle has expansion, peak, contraction, and trough phases; output gaps measure deviation of actual from potential GDP.

Income inequality is summarised by the Lorenz curve and Gini coefficient (0 = perfect equality, 1 = perfect inequality).

Economic growth rate = percentage change in real GDP between periods.

Australia's aggregate demand components: AD = C + I + G + (X - M), consumption, investment, government spending, net exports.

Real GDP per capita growth is the standard proxy for rising material living standards; productivity growth underpins long-run growth.

Labour productivity = real GDP / hours worked; multifactor productivity reflects efficiency across capital and labour.

Australia's comparative advantage rests on abundant natural resources and services such as education and tourism; terms of trade = export prices / import prices x 100.

Structural change shifts employment from agriculture and manufacturing toward services; structural unemployment can follow.

The Reserve Bank of Australia targets inflation of 2-3 per cent on average over the medium term.

Budget outcomes: underlying cash balance = receipts - payments; surplus when receipts exceed payments, deficit when payments exceed receipts.

Australia's exchange rate is floating; depreciation raises import prices and can improve international competitiveness.

Sources of growth: population growth, capital deepening, technological progress, and human capital accumulation.

Monetary policy is conducted by the Reserve Bank of Australia; the cash rate is its key instrument, transmitted via lending rates, asset prices, and the exchange rate.

Expansionary monetary policy lowers the cash rate to raise aggregate demand; contractionary policy raises it to reduce inflationary pressure.

Fiscal policy uses government receipts and expenditure; expansionary fiscal stance increases spending or cuts taxes to raise aggregate demand.

The multiplier = 1 / (1 - marginal propensity to consume); it magnifies the effect of an initial spending change.

Automatic stabilisers (progressive income tax, unemployment benefits) dampen the business cycle without discretionary action.

Demand-pull inflation arises from excess aggregate demand; cost-push inflation arises from rising input costs.

The Phillips curve depicts a short-run trade-off between inflation and unemployment; the long-run curve is vertical at the natural rate.

Supply-side policies (education, infrastructure, competition reform, tax reform) raise productive capacity and shift aggregate supply right.

Policy conflicts include inflation versus unemployment, growth versus environmental sustainability, and equity versus efficiency.