WACE Economics ATAR cheat sheet

Law of demand: price and quantity demanded move in opposite directions, ceteris paribus; movements along the curve are caused by price, shifts by non-price factors (income, tastes, prices of substitutes/complements, expectations, population).

Price elasticity of demand = % change in quantity demanded ÷ % change in price (midpoint formula: ΔQ/avgQ ÷ ΔP/avgP); |PED| > 1 elastic, < 1 inelastic, = 1 unit elastic.

Supply shifters: input costs, technology, taxes and subsidies, number of sellers, expectations, weather; a rightward shift raises equilibrium quantity and lowers equilibrium price.

GDP expenditure approach: GDP = C + I + G + (X − M); nominal GDP uses current prices, real GDP uses base-year prices, and real GDP per capita approximates living standards.

Inflation measured by CPI = (cost of basket in current year ÷ cost of basket in base year) × 100; inflation rate = % change in CPI; demand-pull versus cost-push are distinct causes.

Unemployment rate = (unemployed ÷ labour force) × 100, where labour force = employed + unemployed; types include frictional, structural, cyclical and seasonal.

Money multiplier = 1 ÷ reserve ratio; an increase in the cash rate raises borrowing costs, reduces consumption and investment, and contracts aggregate demand.

Comparative advantage arises from lowest opportunity cost, not absolute productivity; gains from trade exist whenever opportunity cost ratios differ between nations.

Business cycle phases: expansion, peak, contraction (recession), trough; fiscal policy (G and T) and monetary policy (cash rate) are counter-cyclical stabilisers.

Data interpretation: distinguish real from nominal values and per-capita from aggregate figures before drawing conclusions; a rising total with a falling per-capita value signals population growth outpacing output.

Chain of reasoning template: event → shift in demand or supply → change in equilibrium price and quantity → effect on stakeholders → evaluation of magnitude and time lag.

Correlation is not causation: identify omitted variables, reverse causation and selection bias before accepting a claimed economic relationship.

Elasticity decides incidence: the side of the market that is more inelastic bears more of a tax burden; with perfectly inelastic demand, consumers bear the full tax.

Policy evaluation criteria: effectiveness, efficiency (deadweight loss), equity, time lags, and unintended consequences such as crowding out or inflation.

Index numbers: convert raw series to an index (value ÷ base value × 100) to compare growth across variables with different units.

Marginal analysis rule: an action is worthwhile while marginal benefit exceeds marginal cost; allocative efficiency occurs where marginal social benefit equals marginal social cost.

Externalities: negative externality causes marginal social cost above marginal private cost, so the free market overproduces; a Pigouvian tax or tradable permit internalises the cost.

Interpretation caution: percentage changes of small bases are volatile; compare rates of change rather than absolute differences when base sizes differ.