The behaviour of consumers and businesses

Economics is a dynamic and constantly evolving field. As a social science, Economics is interested in the way humans behave and the decisions made to meet the needs and wants of society. In this unit students explore their role in the economy, how they interact with businesses and the way economic models and theories have been developed to explain the causes and effects of human action. 

Students explore some fundamental economic concepts. They examine basic economic models where consumers and businesses engage in mutually beneficial transactions and investigate the motivations and consequences of both consumer and business behaviour. They examine how individuals might respond to incentives and how technology may have altered the way businesses and consumers interact. Students are encouraged to investigate contemporary examples and case studies to enhance their understanding of the introductory economic concepts.

Students examine a simple microeconomic model to explain changes in prices and quantities traded. Through close examination of one or more key markets they gain insight into the factors that may affect the way resources are allocated in an economy and how market power can affect efficiency and living standards. 

AREA OF STUDY 1 - Thinking like an economist

Thinking like an economist Economics has an effect on everyone, irrespective of background. In this area of study students begin to appreciate the contributions of economics as a discipline and investigate some of the factors that motivate people to act in the way they do and the consequences of their actions.

OUTCOME 1

On completion of this unit the student should be able to describe the basic economic problem, discuss the role of consumers and businesses in the economy and analyse the factors that influence decision making. 

AREA OF STUDY 2 - Decision making in markets

The Australian economy uses the market-based system to allocate resources. Markets are essentially places where goods and services are bought and sold. Businesses and consumers engage in mutually beneficial transactions within the market with minimal government intervention. One of the key tools used to explain how prices change and how resources are allocated is the basic demand and supply model. Using contemporary case-studies students make connections between the theory and the workings of different markets in the Australian and world economy. They develop skills in making predictions and Unit 1: The behaviour of consumers and businesses VCE Economics 2017–2021 10 constructing arguments about the possible consequences of key changes in different markets. 

OUTCOME 2

On completion of this unit the student should be able to explain the role of relative prices and other non-price factors in the allocation of resources in a market-based economy.

ASSESSMENT TASKS 

• media analyses

• an analysis of written, visual and statistical evidence 

• a folio of applied economic exercises

Contemporary economic issues

As a social science, economics often looks at contemporary issues where there are wide differences of opinion and constant debate. In most instances the decisions made by consumers, businesses and governments may benefit some stakeholders but not others. Trade-offs, where the achievement of one economic or public policy goal may come at the expense of another, are the subject of much debate in economic circles. 

Students focus on the possible trade-off between the pursuit of growth in incomes and production and the goal of environmental sustainability and long-term economic prosperity. They investigate the importance of economic growth in terms of raising living standards and evaluate how achievement of this goal might result in degradation of the environment and the loss of key resources. Students examine whether the goals of economic growth and environmental sustainability can be compatible and discuss the effect of different policies on the achievement of these important goals.

AREA OF STUDY 1 - Economic growth, long-term economic prosperity and environmental sustainability

In this area of study students consider the meaning and importance of economic growth and its effect on material and non-material living standards. The Australian Government generally pursues policies that are focused on at least maintaining, and in some cases, increasing the rate of economic growth. Economic growth is generally thought to promote improvements in living standards as it is associated with increasing incomes, literacy rates and health outcomes. 

Students evaluate the effect of an ever growing economy on other aspects of modern life. Does economic growth make life better or are there some costs involved? Students investigate the nature of key economic trade-offs; situations where the achievement of one goal may come at the expense of another. There may be a trade-off between the goal of economic growth and the goal of environmental sustainability. Students consider the effect of economic growth on future generations and begin to appreciate some of the current environmental challenges that have been created from past and current economic decisions. They consider the role of alternative economic indicators and evaluate some Australian Government responses from both an economic and environmental perspective. 

OUTCOME 1

On completion of this unit the student should be able to explain the factors and policies that may influence economic growth and environmental sustainability, and analyse the potential trade-off.

AREA OF STUDY 2 - Economic efficiency and equity

Economists frequently talk about the importance of efficient allocation of resources and how fairly income and opportunity are distributed between individuals and groups within society. In this area of study students consider the nature of the potential trade-off between equity in the distribution of income and the efficiency of resource allocation in Australia. 

Students analyse the factors that may lead to income disparity in Australia and one other nation, and why the income of some people is below the poverty line. They examine the effect of poverty and income inequality on individuals and the wider economy and explore the idea of intergenerational poverty. 

Students investigate the factors contributing to, and the effects of, increasing economic efficiency. They examine the effect of efficiency on income distribution and the incidence of poverty. Are the two mutually exclusive goals or can an economy strike the right balance? To develop their application skills in this area of study, students evaluate contemporary budgetary policy initiatives and how these may have affected the goals of equity in the distribution of income and efficiency of resource allocation.

OUTCOME 2

On completion of this unit the student should be able to explain the factors and policies that may influence equity in the distribution of income and efficiency of resource allocation, and analyse the potential trade-off.

AREA OF STUDY 3 - Global economic issues

In this area of study students investigate one or more contemporary global economic issue/s. Students examine the selected economic issue/s from the perspective of the relevant stakeholders and evaluate decisions that may have been made with regard to these issue/s. 

Students consider the economic costs and benefits associated with greater levels of international trade, movement of capital and economic integration. They investigate whether Australia’s prosperity depends upon economic events in the rest of the world and whether the decisions made by Australian economic agents have any effect on the global economy. They observe trade-offs in the wider economy and undertake cost-benefit analyses to evaluate the effect of decisions made to address current global economic issue/s.

OUTCOME 3 

On completion of this unit the student should be able to explain the factors that may influence a global economic issue/s and evaluate potential consequences associated with actions to address the issue/s.

ASSESSMENT TASKS 

• A research essay

• A online multimedia blog 

Australia’s economic prosperity

The Australian economy is constantly evolving. The main instrument for allocating resources is the market but the Australian Government also plays a significant role in this regard. In this unit students investigate the role of the market in allocating resources and examine the factors that are likely to affect the price and quantity traded for a range of goods and services. They develop an understanding of the key measures of efficiency and how market systems can result in efficient outcomes. 

Students consider contemporary issues to explain the need for government intervention in markets and why markets might fail to maximise society’s living standards. As part of a balanced examination, students also consider unintended consequences of government intervention in the market. In this unit students develop an understanding of the macroeconomy. They investigate the factors that influence the level of aggregate demand and aggregate supply in the economy and use models and theories to explain how changes in these variables might influence the achievement of the Australian Government’s domestic macroeconomic goals and affect living standards.

AREA OF STUDY 1 - An introduction to microeconomics

In this area of study students investigate the role of the market in answering the key economic questions of what and how much to produce, how to produce and for whom to produce. They consider the effect of decisions made by consumers and businesses on what goods and services are produced, the quantities in which they are produced, to whom they are distributed and the way they are produced. 

Students investigate some of the key factors that influence the level of demand and supply in the economy and how these might lead to changing prices and the movement of land, labour and capital to those areas of production that generate the most value for society. Students use models to make predictions and to consider the role of markets in achieving economic efficiency. Using a case study from the past two years they discuss instances where the market fails to allocate resources efficiently and whether government intervention leads to a more efficient allocation of resources in terms of maximising society’s well being. 

OUTCOME 1

On completion of this unit the student should be able to explain how markets operate to allocate resources, and discuss the effect of government intervention on market outcomes.

AREA OF STUDY 2 - Domestic macroeconomic goals

In this area of study students investigate the Australian Government’s domestic macroeconomic goals of low inflation, strong and sustainable economic growth and full employment and why these goals are pursued. They consider the role of key economic agents using a simple circular flow model of the macroeconomy. Students examine how each of the goals is measured and the potential consequences associated with the non-achievement of each goal. They identify and analyse contemporary aggregate demand and aggregate supply factors that may influence the achievement of domestic macroeconomic goals in the past two years, and consider how achievement of the goals may affect material and non-material living standards.

OUTCOME 2

On completion of this unit the student should be able to analyse key contemporary factors that may have influenced the Australian Government’s domestic macroeconomic goals over the past two years and discuss how achievement of these goals may affect living standards.

AREA OF STUDY 3 - Australia and the world economy

Australia is an open economy. There has been a gradual reduction in trade barriers with trade making an increasingly greater contribution to Australia’s living standards. Students examine the reasons why countries engage in international transactions such as the exchange of goods and services and the movement of savings and investment capital, and evaluate how these transactions might affect living standards. They investigate how international transactions are recorded and the relationships between different sections of the balance of payments. Students apply their knowledge of demand and supply models to explain movements in the exchange rate, and discuss the effects of changing currency values on the achievement of the Australian Government’s domestic macroeconomic goals.

OUTCOME 3

On completion of this unit the student should be able to explain the factors that may influence Australia’s international transactions and evaluate how international transactions and trade liberalisation may influence the current account balance, the Australian Government’s domestic macroeconomic goals and living standards in Australia.

ASSESSMENT TASKS 

• Short and extended Responses

• Folio of applied economic exercises

• Essay

Managing the economy

The ability of the Australian Government to achieve its domestic macroeconomic goals has a significant effect on living standards in Australia. The Australian Government can utilise a wide range of policy instruments to influence these goals and to positively affect living standards. Students develop an understanding of how the Australian Government can alter the composition and level of government outlays and receipts to directly and indirectly influence the level of aggregate demand and the achievement of domestic macroeconomic goals. 

AREA OF STUDY 1 - Aggregate demand policies and domestic economic stability

In this area of study students examine how the Australian Government and its statutory authority, the RBA, can utilise budgetary and monetary policy respectively to influence the level of aggregate demand in the economy. They evaluate the relative effectiveness of each policy by focusing on their strengths and weaknesses and explain how each policy has been utilised by the Australian Government in the past two years.

OUTCOME 1

On completion of this unit the student should be able to discuss the nature and operation of aggregate demand policies and analyse how the policies may influence the Australian Government’s domestic macroeconomic goals and living standards.

AREA OF STUDY 2 - Aggregate supply policies

In this area of study students examine the important role of aggregate supply policies in creating a stronger macroeconomic environment so that domestic macroeconomic goals can be more easily achieved. They investigate the different approaches that government may take to promoting competition and efficiency. Should the Australian Government intervene in the market? Is it better to rely more on the market to promote productivity growth and improvements in the quality and quantity of the factors of production? Students evaluate each of these approaches, highlighting their strengths and weaknesses and drawing conclusions about the short-term and long-term consequences in terms of the domestic macroeconomic goals and living standards.

OUTCOME 2

On completion of this unit the student should be able to discuss the nature and operation of aggregate supply policies and analyse how the policies may influence the Australian Government’s domestic macroeconomic goals and living standards.

ASSESSMENT TASKS 

• Short and extended Responses

• Essay

For more information about Economics, see James Kirchner