Unit 1: Markets and models
6 dot points, in syllabus order. Each dot point has a focused answer, with exam-style questions and worked answers where available.
Topic 1: The basic economic problem
Circular flow of income model. Defines the five sectors, distinguishes the three leakages (savings, taxation, imports) from the three injections (investment, government spending, exports), and explains how equilibrium, expansion and contraction in national income arise.
Basic economic problem. Defines scarcity and the four factors of production, distinguishes economic from accounting cost, draws and interprets the production possibility frontier, and explains why economies face trade-offs.
Topic 2: The market mechanism
How the price mechanism allocates scarce resources. Explains the signalling, incentive and rationing functions of prices, links them to the what, how and for whom questions, and shows how prices reallocate resources when conditions change, with Australian examples.
Government price controls. Defines consumer and producer surplus, explains how a price ceiling creates a shortage and a price floor creates a surplus, draws both diagrams, and analyses the deadweight loss and distributional effects with Australian examples such as rent control and the minimum wage.
Market mechanism. Defines the laws of demand and supply, identifies the non-price determinants of each, finds equilibrium price and quantity, distinguishes movements along from shifts, and explains price elasticity with the standard formula.