VCE Economics flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Law of demand

The principle that, ceteris paribus, quantity demanded of a good falls as its price rises and rises as its price falls, producing a downward-sloping demand curve.

Price elasticity of demand

A measure of responsiveness of quantity demanded to a price change, calculated as percentage change in quantity demanded divided by percentage change in price.

Opportunity cost

The value of the next best alternative forgone when a choice is made, reflecting the scarcity of resources available to consumers and businesses.

Market equilibrium

The price and quantity at which quantity demanded equals quantity supplied, so there is no tendency for price to change unless a curve shifts.

Diminishing marginal utility

The tendency for each additional unit of a good consumed to add less extra satisfaction than the previous unit, other things equal.

Supply curve shift

A movement of the whole supply curve caused by changes in input costs, technology, taxes, subsidies, or the number of sellers, not by price.

Unemployment rate

The number of people unemployed expressed as a percentage of the labour force, where the labour force comprises employed plus unemployed persons.

Consumer Price Index

A weighted index measuring the price of a representative basket of goods and services purchased by households, used to calculate the inflation rate.

Structural unemployment

Unemployment arising from a mismatch between the skills or location of workers and the requirements of available jobs, often following technological or industry change.

Real GDP per capita

Real gross domestic product divided by population, a common indicator of material living standards because it adjusts output for inflation and population size.

Gini coefficient

A measure of income inequality derived from the Lorenz curve, ranging from zero for perfect equality to one for perfect inequality.

Non-material living standards

Aspects of wellbeing not captured by income or output, including health, education, leisure time, social connection, and environmental quality.

Business cycle

The recurring pattern of expansion, peak, contraction, and trough in economic activity, measured by fluctuations in real GDP around potential output.

Aggregate demand

Total planned expenditure on final goods and services in an economy, equal to consumption plus investment plus government spending plus net exports.

Labour productivity

Output produced per unit of labour input, commonly real GDP divided by hours worked, a key determinant of long-run growth in living standards.

Terms of trade

The ratio of export prices to import prices, often expressed as an index, indicating the purchasing power of a nation's exports over imports.

Comparative advantage

The ability of a country to produce a good at a lower opportunity cost than another country, forming the basis for mutually beneficial trade.

Underlying cash balance

The Australian government's headline budget measure, calculated as receipts minus payments, excluding gains and losses from investments.

Structural change

A long-term shift in the composition of an economy's output and employment, for example from agriculture and manufacturing toward services.

Floating exchange rate

A system in which a currency's value is determined by market forces of supply and demand rather than being fixed by the central bank.

Capital deepening

An increase in the amount of capital per worker, which raises labour productivity and can lift output per person over time.

Cash rate

The interest rate on overnight loans between financial institutions in the money market, set by the Reserve Bank as its main monetary policy instrument.

Monetary policy

Actions by the central bank to influence interest rates and the money supply in order to achieve price stability and support sustainable economic growth.

Fiscal policy

The use of government taxation and expenditure to influence aggregate demand, resource allocation, and income distribution in the economy.

Spending multiplier

The ratio of the change in equilibrium output to the initial change in spending, equal to one divided by one minus the marginal propensity to consume.

Automatic stabilisers

Features of the budget, such as progressive income tax and unemployment benefits, that automatically reduce fluctuations in aggregate demand without new policy decisions.

Demand-pull inflation

Inflation caused by growth in aggregate demand exceeding the economy's productive capacity, allowing firms to raise prices with little resistance.

Cost-push inflation

Inflation arising from increases in the costs of production, such as higher wages or imported input prices, which shifts aggregate supply to the left.

Phillips curve

A curve showing the short-run inverse relationship between inflation and unemployment, with the long-run version vertical at the natural rate.

Supply-side policy

Government measures such as education, infrastructure, and competition reform aimed at raising productive capacity and shifting aggregate supply to the right.

Inflation target

The Reserve Bank of Australia's framework aiming to keep consumer price inflation between two and three per cent on average over the medium term.

Output gap

The difference between actual and potential gross domestic product, expressed as a percentage of potential output, indicating spare capacity or overheating.