Chapter 12
ECONOMICS
IN ACTION
Each day in Australia, millions of economic
transactions take place. Buyers and sellers come
together in thousands of different marketplaces
and decide the types and quantities of goods and
services to be produced. Normally, the goods and
services wanted are available at reasonable
prices when and where they are demanded.
It is a complex system that operates with
amazing efficiency. The most mysterious aspect
is that the forces responsible for the system’s
operation are unseen. One of them is the right of
consumers and businesses to make their own
economic choices.
Economic knowledge and understanding
• Explain key factors that influence the Australian
economy, including the quantity and quality of
factors involved in production, resource use,
ownership and management, and types of
businesses.
• Make informed economic and consumer decisions,
demonstrating the development of personal
financial literacy.
• Describe factors that affect choice of employment
and opportunities for current and future work.
• Explain the relationship between education,
training and work opportunities.
• Identify and describe ways the government
influences economic outcomes at the personal,
local and national level.
Economic reasoning and interpretation
• Use the inquiry process to plan economic
investigations.
• Analyse and interpret data.
• Form conclusions supported by evidence.
• Form and express opinions on economic issues
that interest and/or have an impact personally,
locally and/or nationally.
The world of economics involves people
producing and consuming goods and services.
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HUMANITIES 2
business plan: a written statement of the business’s
goals and objectives, and the steps taken to achieve them
demand: the amount of a good or service that will be
bought at a particular price
entrepreneur: someone who starts, operates and
assumes the risk of a business venture in the hope of
making a profit
fixed expenses: expenses that are the same amount
every time
franchise: the rights from a manufacturer to distribute
its products under its name
goodwill: the monetary value of a business’s reputation.
Location, customer base and other factors that make a
business a profitable concern
income: money received on a regular basis from work,
property, business and welfare payments
incorporation: the company has become a separate
legal entity from its owners (shareholders)
interdependence: consumers, businesses or
governments relying on other consumers, businesses or
governments for assistance, i.e. being mutually
dependent on each other
limited liability: if the business cannot pay its
debts, a shareholder loses only the money he
or she invested in the business.
market: where buyers and sellers come together and
exchange goods and services for money
mixed economy: an economic system in which
individuals and businesses make their own decisions but
with a degree of government involvement
participation rate: the proportion of people aged 15 or
over employed or actively seeking work
perpetual succession: a company will continue to exist
when the owners change
profit: what remains after all business expenses are
deducted from the sales revenue
salary: a fixed amount of money paid on a regular basis
(usually fortnightly or monthly) to a permanent employee
of an organisation
specialisation: when people perform one specific job
supply: the amount of a good or service that will be
offered for sale at a particular price
unlimited liability: when a business owner is
personally responsible for all the debts of his or her
business
variable expenses: expenses that change over time
wage: money received by workers, usually on a weekly
basis, for services they provide to an employer
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12.1
ECONOMIC LINKS
One important feature of our modern commercial
world or economy is the high degree of specialisation that exists. This means that people perform one specific job. You specialise as a
mechanic, electrician, nurse, computer analyst
and so on.
Specialisation has two main advantages. The
first is that more goods and services can be produced in the economy. Secondly, consumers have
a greater range of goods and services to choose
from.
Because of specialisation, we rely on other
people to produce the goods and services we need
and want. There is interdependence between
individuals, between businesses and between
individuals and businesses. Just think of all the
Goods and services
Income $
people you have relied on to provide you with all
the goods and services you have consumed in
your lifetime. Consumers and businesses are also
dependent on the government.
When a person is employed by a business, the
employer relies on this person to provide labour.
In return, the employee relies on the business for
income. When consumers have some money,
they will want to buy goods and services. They
will rely on the producer to make the goods and
services they wish to purchase. The consumer
will pay for these goods and services and the producer will supply them. Some of the income
earned by the employee will be taken out as a
tax payment. This money will be received by the
government. In return, the government will
provide a large range of goods and services to satisfy society’s collective
wants. The consumers pay their taxes
and the government provides goods
and services.
As you can see, people in our
economy rely on many other people.
The economy is an intricate web
linking many people, satisfying our
needs and wants so that we can live
more comfortably.
THE FLOW OF MONEY
Labour
Spending $
(Collective)
Goods
and
services
(Infrastructure)
Goods
and
services
Taxes
$
Taxes
$
Money is the medium used to
exchange goods and services. It therefore links the main sectors within our
economy: consumers, employers, businesses and governments.
Money
is
constantly
flowing
throughout the whole economy. It is
what makes our economy function. Oil
is the lubricant that keeps your car
engine running smoothly. In the same
way, money is the lubricant that keeps
our economic system working. Without
money, we would have to go back to
barter. This would result in fewer and
weaker links between the sectors and
a lower standard of living.
Economic links between Australian consumers,
employers, businesses and governments
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HUMANITIES 2
Role of government
An influence
on the redistribution
of income
3.
2.
A controller
of our commercial
lives
The government operates in a range of areas to make it possible for our
economy to function efficiently.
1.
Jacinta
(an employee)
ICT
ICT
JD Fashions
(a retail
business)
A regulator
of the economy
Hollywood
Video Hire
(an employer)
(a) Make a copy of the diagram in your
notebook. Alternatively, you may wish to use
a word-processing application to construct
the diagram.
(b) Some of the words are missing. Select the
correct ones from the following list to
complete the diagram:
(i) provides labour
(ii) pays for goods and services
(iii) provides income
(iv) supplies goods and services.
(c) If you think of this diagram as a ‘model’ of
what happens in the real economy, explain
the importance of money.
Communicate
5. (a) Assess the importance of each of the four
areas of government responsibility.
(b) List them in order of significance. Discuss
your list with other class members.
Think
6. Examine the diagram on page 250. Explain how
production, specialisation and exchange are
interrelated or interdependent.
Design and create
7. Create a diagram to show the flow of money,
goods and services within our economy and the
world economy. You may wish to use desktop
publishing software to present the diagram with
text and graphics.
Worksheets
12.1 Life of a $10 note
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CHAPTER 12: ECONOMICS IN ACTION
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A producer of
goods and
services
Understand
1. Explain the meaning of the following words by
using them in a sentence:
(a) specialisation
(b) interdependence
(c) mixed economy.
2. What is the government’s main role within our
economy?
3. Prepare a list of ten people you have relied on
today to satisfy some of your needs and wants.
Indicate what goods or services they supplied
for you. Alternatively, you may wish to use a
word-processing package to create a table to
record your answer.
4. Jacinta works at Hollywood Hire Video. She buys
clothes from JD Fashions. The following diagram
shows the interdependence (links) between
Jacinta, her employer and JD Fashions. Look at the
diagram and then complete the following tasks.
4.
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Desktop publishing
say there is not enough. Once you start voting,
you will be helping to decide what part the
government should play in our economic system.
THE ROLE OF GOVERNMENT
Consumers and producers in Australia have a great deal of power in
deciding the types and quantities of
goods and services produced, but
their freedom of choice is regulated
somewhat by our governments. This
is why our economy is referred to as
a mixed economy: an economy that
relies on markets to organise most
aspects of economic life, but with the
government playing an important
role in influencing economic activity.
The diagram at right highlights
the main areas of government
responsibility.
Within our society there is no
agreement about what kind of regulation is needed or how much. Some
say there is already too much; others
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12.2
EARNING AN INCOME
TYPES OF INCOME
As a teenager you are probably now aware of the
importance of money — how much you need, how
to spend it and in particular how to earn it.
There are many ways to earn an income. An
income is money received on a regular basis from
Many people earn
wages at age 15 years
when they begin
casual work at
supermarkets,
bakeries, fast food
outlets and
newsagents. If you
work more than your
allocated hours per
week, you might be
eligible for overtime
payments. You may
also earn penalty rates
for working on public
holidays and
weekends.
work, property, business or welfare payments.
Receiving an income enables people to satisfy
their needs and wants. Generally, a person’s level
of education, the skills they possess and the
career they choose determines the size of their
income. The main types of income are
described in the information below.
People such as real estate agents and sales assistants in
car yards may elect to be paid on commission. This means
that they are paid according to the volume of sales that they
generate through their work.
Investing in shares
can result in a
shareholder
receiving an
income payment
called a dividend.
To earn income,
young people
may undertake
odd jobs, in
which they are
paid to perform
small tasks. For
example, if you
helped your
neighbours to
build a front
fence, they
might pay you
$50 for a day’s
work. Odd jobs
require the
completion of
duties before
you are eligible
for payment,
whereas pocket
money is usually
freely given to
children by
parents or
grandparents.
Millions of people in Australia rely on social
welfare payments for full or partial support.
These include unemployment benefits,
sickness benefits and homeless allowance.
People can earn or receive an income in a number of different ways.
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HUMANITIES 2
SKILLS essentials
Interpret a table
Study this table, then answer the questions below.
Salary earners have full and part-time jobs where the
employer provides entitlements such as sick leave,
superannuation and long service leave. There is more
certainty in salaried employment than casual work,
where people are paid by the hour and can be
dismissed at short notice.
Average weekly earnings for full-time adults
Year
Males
Females
2000
2001
2002
2003
2004
2005
$817
$857
$904
$954
$1001
$1064
$687
$724
$765
$805
$851
$903
Source: Australian Bureau of Statistics
(a) How much more did an average full-time male
earn in 2005 than in 2000?
(b) Did males or females have the larger increase
in earnings between 2000 and 2005?
(c) Suggest reasons for the differences between
male and female incomes.
Professionals such as
dentists, doctors and
solicitors get their
income by charging a
fee for their services.
Understand
1. Explain what is meant by the term ‘income’. List
the different income types mentioned in the
diagram at left.
2. Complete the table below.
Term
A. Wage
B. ....................
C. ....................
D. Royalties
E. Commission
F. ....................
People who
operate their own
business are selfemployed. They
make their own
income from the
profit of the
business. They
protect the security
of this income by
taking out income
protection
insurance.
Musicians, artists and
writers earn their
income from royalties.
By purchasing a property as an investment,
people can earn rent once tenants are found.
G. ....................
Meaning
............................................................
Payment for a service performed
Based on a yearly income
............................................................
............................................................
A payment for someone who is
unemployed
Income from a business
3. Using cuttings from the employment section of a
newspaper, prepare two collages. One will
display occupations that are paid a salary and the
other, occupations that are paid a wage.
Think
4. Kayako’s wage is $14.50 per hour. She works a
38-hour week.
(a) Calculate her total weekly income.
One week, she worked three hours overtime at
time-and-a-half.
(b) Calculate her total income for that week.
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12.3
SPENDING AN INCOME
People who earn money may wish they could
spend it on whatever they choose, but the reality
is quite different. Taxes and charges, bank fees,
rent, mortgage payments and bills quickly take a
large proportion of the money that we earn.
These expenses are fixed expenses; that is,
they are the same amount every time. For
example, on your mobile phone plan you may
have to pay a minimum charge of $40 per month.
Other types of expenses are variable and
change over time. For example, you may buy a
DVD this month and go to the movies next
month. The secret to managing money is to keep
careful records of these deductions from income
and to minimise them wherever possible.
A student in paid employment can expect to
have a number of expenses, for example:
• Taxation: The Federal Government deducts a
proportion of income earned by employees who
are paid either a salary or wages. The people
who pay tax in this way are known as PAYG
(Pay As You Go) taxpayers.
• Goods and Services Tax (GST): The Federal
Government imposes a 10 per cent GST on
many goods and services that you purchase.
There is no GST payable on fresh food, health
insurance and medical fees.
• Rent or board: Many young people pay board
to their parents or rent on a property they
have leased from another person.
• Loan repayments to a financial institution:
Some young people might borrow money for a
car and then have to meet interest repayments.
In a few cases, a young person may even have
a mortgage, which is a loan for the purchase of
a home. In such cases, the interest rate might
fluctuate (move up and down). The person with
the loan must therefore be sure that she or he
can meet the repayments if the interest rate
increases. If not, the institution that lent the
money can sell the property to settle the debt.
• Institutional fees: These are charged by banks
for the keeping of accounts, writing of cheques
and other financial services.
• Utilities: There are always bills for gas, electricity, water usage and telephone. The mobile
phone is a particular issue for many young
people, with some ‘running up’ bills in excess of
$300 per month.
• Educational expenses: These include expenses
for books, fees, Internet and photocopying.
• Superannuation: Many people have a fixed
amount deducted from their income for superannuation, which provides for their retirement
from age 55 onwards.
A baby, a mortgage and a big
fat debt!
One extra little mouth to feed has forced Damian and Katherine to
count every cent! With the arrival of Anthony, their baby son, Katherine
is now at home, and the family is receiving only one income. With a
mortgage, heavy household bills and vehicle costs, managing their
finances is a challenging task. Damian estimates that he
spends 25 per cent of his income on mortgage repayments to the bank.
Damian and Katherine bought their first house two
years ago for $250 000. Since then, its value has
climbed to about $400 000.
‘We’re thrilled with the increase in the value of our
home,’ said Katherine, ‘although if the Reserve Bank
increases interest rates, we will struggle to make
monthly payments and may have to sell the car or
even our home.’
The Federal Treasurer and the Governor of the
Reserve Bank have urged first home buyers to plan
carefully to ensure that they can meet any increases
in home loan repayments should interest rates rise.
Damian, Katherine and their baby son Anthony
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HUMANITIES 2
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Computer graphics
CASE STUDY
Managing Julia’s money
The diagram below shows the living expenses in
a typical week for 21-year-old Julia Moretti.
Understand
1. What is meant by the following terms?
(a) PAYG taxpayer
(b) GST
(c) Superannuation (d) Rent
2. Use examples to explain the difference between
fixed and variable expenses.
3. List five expenses under the two headings in the
table below.
Fixed expenses
Variable expenses
4. Why is it so important to keep a careful track of
your expenses? What might happen to a person
who loses track of their expenses?
Name: Julia Moretti
Occupation: Arts student
Works part-time at the
local bakery earning $400
per week on average
Lives: In a share-house
with two friends
Owns: A mobile phone,
a 10-year-old car
$100 for share
of rent
$65 in PAYG
taxation
$35 for
mobile phone
$90 for household
bills (including food)
$50 for entertainment
(clubs, restaurants)
$40 for car
running costs
Communicate
5. Read the newspaper article opposite. Then, in
small groups, roleplay a likely discussion among
young adults about the impact that having a baby
can have on a couple’s finances. Include in your
discussion, reference to the sort of financial
planning that is necessary before the arrival of a
new baby. You may wish to video the roleplays
and view and discuss them as a class.
Teamwork
6. Working in small groups, examine Julia’s case
study, and answer the following questions:
(a) Approximately how much is Julia saving each
week?
(b) What items in Julia’s expenses are essential
to her survival?
(c) What items could be considered to be luxuries?
(d) Identify two ways in which Julia could save
more money each week.
7. Once each group has analysed the questions in
activity 6, have a class discussion to share your ideas.
Use ICT
8. Prepare a poster urging young people to keep
track of their expenses. It should be visually
attractive and appealing to young people.
Include a warning about the temptation to
overspend. You may wish to use computer
graphics software to design the poster. For some
good ideas, visit the website for this book and
click on the Consumer Affairs Victoria weblink
for this chapter (see ‘Weblinks’, page xii).
Worksheets
12.2 The outcome of income
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12.4
CHANGING WORK PATTERNS
Traditional work patterns are changing rapidly.
The idea of a job for life is disappearing and
employees in the future will tend not to have a
clear career path. Many people today have periods
as full-time employees followed by periods of
casual, part-time or contract (self-employed) work.
OLD VIEW
NEW VIEW
Job
Work
OLD VIEW
NEW VIEW
Employee
Vendor
OLD VIEW
NEW VIEW
False sense
of security
Sense of personal
control
Old and new approaches to work
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HUMANITIES 2
NEW VIEW
OLD VIEW
Employment
Employability
OLD VIEW
NEW VIEW
Job titles
Competencies
OLD VIEW
NEW VIEW
Career ladder
Career lattice
OLD VIEW
NEW VIEW
Portfolio
career
One career
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CHAPTER 12: ECONOMICS IN ACTION
DEMOGRAPHIC CHANGES
The number of women in the workplace has risen
rapidly in recent decades — women now comprise 45 per cent of the workforce and have a
participation rate of 70 per cent.
Employers are recognising the cost savings and
benefits of ‘family friendly’ workplace practices in
order to motivate and retain skilled staff. Women
have also been attracted to the flexibility offered
by the many casual and part-time jobs available.
Their working life is often dominated by periods
of part-time and casual work. Consequently, they
have few opportunities for promotion and are
usually retrenched first if the business is experiencing financial difficulties. These people will
sometimes experience long periods of unemployment. Exploitation of these employees can also
occur.
SKILLS essentials
Evaluate a newspaper article
News articles are written to gain the reader’s
interest. They may also present a particular point of
view.
ECONO
The Australian workforce is ageing and health
and superannuation costs related to age will
increase, requiring employees to plan for these
future expenses. Consequently, the Federal
Government is recommending that employees
consider extending their working life rather
than retiring early.
The downside of being too casual
CASUALISATION OF THE
LABOUR FORCE
One of the most important changes to work patterns in the last 20 years has been the significant
increase in casual employment. Casual workers
currently make up approximately 25 per cent of
the labour force, with some industry sectors —
such as retail and hospitality — employing
almost half their labour force as casuals.
Some casual employees, especially the young,
find it difficult to gain full-time employment.
Casual employment is most common among young people.
Thomas Comer — Industrial reporter
Since the early 1990s, the number of Australian
workers in casual employment has more than
doubled. The growth of casual work has provided
many opportunities for women with families
wanting limited working hours, and students
needing financial support.
However, for many, casual employment reflects a
lack of full-time employment, rather than a longterm preference for casual work. Casuals often find
it difficult to access full-time or permanent jobs,
particularly if they miss out on training and
development opportunities available to full-time
staff. Casuals also miss out on basic entitlements
and their casual loading often does not make up for
these.
Many casual employees exist on low or
unpredictable incomes, are forced into poverty and
find it difficult to obtain credit. Consequently, they
pay off cars and homes in the longer term due to
the uncertain future of their employment.
Casual employees are also more likely to
experience workplace accidents and are often less
committed to the businesses that employ them.
The increasing casualisation of the workforce is
producing a two-tiered labour market, leaving those
in casual work permanently disadvantaged, and the
gap between the rich and poor growing wider.
(a) What is the author’s attitude towards the
increase in casual employment?
(b) What negative points about casual employment
does the author raise?
(c) Have any positive points been raised to balance
the article? If so, what are they?
(d) Discuss the advantages and disadvantages for
employers of a highly casualised workforce.
(e) If you were rewriting this article and planning
to present the opposite point of view, what
issues would you raise?
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HUMANITIES 2
ON
TECHNOLOGICAL CHANGE
The so-called ‘information revolution’ has led to
massive changes in the way people work. The
main changes are:
• work can be contracted out to people working
from home
• there is a marked decrease in the number of
people employed in manufacturing industries
and a corresponding increase in the information and services industries
• ongoing training programs are needed
• new jobs are being created using new technologies, while others become outdated.
about the benefits achieved from flexible working
hours and permanent part-time work. Many
employees now work 12-hour shifts, broken by
days off, as part of their industrial agreements.
Others have lost their weekends and their ability
to enjoy time off with their families.
These difficulties have arisen because
employees and employers may have a different
meaning for the term ‘flexibility’. For example,
employees may view ‘flexibility’ as providing them
with an opportunity to rearrange work hours to
better suit their lifestyles and family commitments. However, an employer may see ‘flexibility’
as the introduction of longer shifts or the scrapping of penalty rates for weekend work.
Understand
1. Are the following statements true or false?
(a) This section was about the changes in
traditional work patterns. (T/F)
(b) Many employees will have more than one
career during their working life. (T/F)
(c) The number of females in the labour force
has increased over the last 30 years. (T/F)
(d) Flexible working arrangements are becoming
common in workplaces. (T/F)
2. Outline two effects of technology on work
patterns.
3. What has been the impact on work patterns of
an increase in the female participation rate in the
workforce?
4. Why do many businesses offer ‘family-friendly’
workplace practices?
Technology changes the work people do.
FLEXIBLE WORKING
CONDITIONS AND HOURS
Flexible working conditions are patterns of work
that allow employees to balance work and family
responsibilities more effectively. For example,
some employer–employee agreements allow
opportunities for home-based work, which gives
employees more flexibility during working hours.
This is becoming more practical as electronic
methods of communication and other technologies improve. Many businesses also offer permanent part-time work in order to retain skilled
and valued staff who have family commitments.
Conflicting views are emerging from employees
(other than those who choose part-time work)
Think
5. Why do employers and employees sometimes
hold conflicting views with regard to flexible
working hours and part-time work?
6. Examine the old and new approaches to work on
pages 256 to 257. Briefly describe three of the
changes to work patterns.
7. What are the advantages and disadvantages to
employees of flexible working hours?
8. Between 1984 and 2006 the number of casual
jobs in Australia almost doubled (now 29 per
cent of the workforce). Why do you think the
increase has been so large?
Communicate
9. In small groups, roleplay a meeting between
management and employees where
management wants to introduce a new roster of
four-day, 10-hour shifts and remove weekend
penalty rates. You may wish to video the
roleplays and view and discuss them as a class.
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12.5
MARKETS
A shopping mall is an example of a marketplace.
Shopping can be thought of as a game. There
are players: retailers selling goods and consumers wanting to buy them. There is also a set
of rules: usually drawn up by the government
who sometimes joins the game. There is money:
real money, not play money. And of course there
is a board upon which the game is played: the
marketplace where buyers and sellers come
together and exchange goods and services for
money. Like all games, there is a certain
amount of competition between the players.
Competition between sellers
The aim of all businesses is to make a profit. One way they
do this is to attract more customers to their store: by
‘stealing’ some of their competitors’ customers or by
attracting new ones.
Businesses that compete successfully will usually
increase their profit. Occasionally, just like in the game of
Monopoly, one ‘player’ or business becomes so successful
it starts to dominate the ‘game’ or the
market. This situation may be good
for the business because it
should be able to
make large profits,
but it is not always
desirable from the
consumer’s
viewpoint.
Customers prefer
competition
between
businesses. A
market that is
competitive will
offer consumers a larger
range of goods and services
to choose from, better quality
products and, most importantly,
goods at cheaper prices.
Competition
between buyers
and sellers
Another type of competition that exists in the
marketplace is the competition between the
customer (buyer) and the retailer (seller). The
retailer competes with the customer by trying to
transfer the money from his or her pocket into the
cash register. It is a competition for the
consumer’s dollar.
Supermarket retailers are expert at this type of
competition. Subtle persuasion or even
manipulation is all part of the ‘game’. To
help win the ‘game’ and get the customers
to spend more in their stores, retailers use
carefully designed lighting, piped music, airconditioning, eye-catching attractive display
shelves and store layout as subtle tactics. At the
checkout, tempting items are displayed for that quick,
last-minute impulse purchase.
Marketing
This plays an extremely important role in
influencing our consumer decisions. As
consumers, we are constantly exposed to
all aspects of marketing. The average
consumer is exposed to an estimated 500
marketing strategies (mainly some form of
advertising) every day. New products are
released onto the market and advertised.
If the marketing campaign is successful,
consumers will be influenced into thinking
they need this product.
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Price
Imagine you are at a house auction where fifteen people want to bid. As the
auction progresses, the bidders will force up the price. Some bidders will drop
out as the price rises. Eventually, one bidder will make the final and successful
bid. In this case, the price of the house is determined by the actions of the
buyers and the seller.
This is similar to what happens in our economy. The market forces of demand
and supply determine the prices at which goods and services will be exchanged.
Demand is the amount of a good or service that will be bought at a
particular price and supply is the amount of a good or service that will
be offered for sale at a particular price. When the demand for a good
or service exceeds the supply, the price will rise. For example, the
price of accommodation at the ski fields rises during the winter
months because there are more people wanting to visit
(demand) than there are rooms
available (supply). Conversely,
when the supply of a good or
service exceeds demand, the
price will fall. The price of
mangoes, for example, falls
during the summer months
when they are in abundant
supply.
Understand
1. What factors influence the price of goods and
services?
2. What are the main benefits for consumers of
competition between sellers?
3. How does marketing influence consumer
decisions?
Think
4. Visit two local supermarkets and draw a sketch of
the floor plan. Make sure you contact the manager
to gain his or her permission. Examine the sketches.
What arrangements do they have in common? Why
do you think they are arranged this way?
5. Using the law of demand and supply, explain why:
(a) the price of an airline ticket from Melbourne
to London varies depending upon the season
(b) in 2006, a World War I Victoria Cross medal
fetched $1 million at auction.
Teamwork
6. In small groups, discuss why some consumers
are prepared to pay a high price for a product,
while other consumers would not buy the
product even if the price was low. What does
that tell you about the relationship between
price, and customer tastes and preferences?
Choose a spokesperson to share the group’s
comments with the rest of the class.
Dig deeper
7. Markets can be divided into different types
depending upon the number of sellers.
Monopoly, or one seller, is perhaps the most
well-known market. The others are called
duopoly, oligopoly, monopolistic competition
and perfect competition. Complete the following
table. The first one has been completed for you.
Market type
Monopoly
Number of sellers
Brief description
1
One seller dominates
the market and has a
lot of control over the
price.
Duopoly
Convenience
Many consumers do
not have a lot of
time to shop.
They want
shopping to be
hassle-free, or
convenient. Convenience
has many meanings for
consumers, such as
travelling time to a retail
outlet, the number of stores
located within one
shopping complex or
suitable shopping hours.
These factors will influence
when, where and what
consumers buy.
Oligopoly
Monopolistic
competition
Perfect
competition
Worksheets
12.3 Supermarket shopping — the hidden persuaders
261
CHAPTER 12: ECONOMICS IN ACTION
12.6
BEING AN ENTREPRENEUR
Owning and operating your own small business
can be challenging, rewarding and stimulating,
as well as hard work. It requires a great deal of
planning, an understanding of customers and
their needs, and constantly staying ahead of your
competition. For those prepared to take the risk
and who finally make it, the sense of achievement and satisfaction is well worth the effort.
ENTREPRENEURSHIP
Most of us have seen something advertised and
thought, ‘that is just what I need’. Someone,
somewhere, had the idea to provide this product.
From this original idea a business was formed to
develop, produce and market this product. All
businesses begin when a person or group of
people have an idea for a new or improved
product. It takes someone to start, operate and
assume the risk of a business venture. Such a
person is called an entrepreneur.
Bill Gates, co-founder of Microsoft Corporation
— the world’s most successful computer software
company — is a classic example of an entrepreneur. While a teenager, he decided to take the
risk of establishing his own business and
launched Microsoft. Today, he is the world’s
wealthiest individual. Microsoft software is used
to operate millions of computers worldwide. Bill
Gates has the capacity for
innovating, investing
and expanding into
new markets with
new products and
techniques.
Bill Gates,
a successful
entrepreneur
However, entrepreneurial qualities are not confined to the world’s wealthiest people. At a recent
swimming carnival, Yolanda Zurack, a Year 12
student, arranged to sell a selection of fruit-based
cold drinks. To keep her costs down, Yolanda
bought the fruit through a local wholesaler.
During the very hot day, she sold all the drinks and
made a reasonable profit. Yolanda Zurack and Bill
Gates are both entrepreneurs. They organised
their business, undertook the necessary arrangements for it to operate, and were prepared to take
a risk. The size of the profits may differ, but they
possess identical entrepreneurial qualities.
Without such entrepreneurs and their activities,
many of the products we purchase would not exist.
An entrepreneur’s drive and motivation to establish and operate a business lies at the heart of our
private enterprise economic system.
Yolanda Zurack was prepared to accept the risk of operating
her own small business.
ECONO
Most entrepreneurs are motivated by the
rewards they believe can be gained from establishing a business, including both monetary
and non-monetary rewards.
262
HUMANITIES 2
Angela
Wong — an
energetic
entrepreneur
showed me the importance of preparing a business plan.
The plan took six months to complete. During that time I
met with people in the graphic design industry and talked
to potential customers. I knew that commencing a business would require hard work and long hours, but I was
totally committed to the idea. My faith in the potential
success of the designs could not be shaken. I was determined to succeed.’
Still in her mid-20s, Angela
Wong is the driving force
behind NueVue Graphics, a
graphic design business specialising in 3-D holograms.
When Angela started the business in August 2000, she
had no idea it would eventually employ 10 people and
operate from a purpose-built factory. ‘The growth in
demand for our products has been phenomenal, averaging 28 per cent each year. This is because we offer a
diverse range of designs not available from many other
graphic design businesses. We also provide a complete
service — concept design, consultancy, project management and support services.’
In the early days, money was tight and Angela had
little experience in operating a business. However, she
was highly motivated and had a firm belief in her
product. ‘I understood there would be risks. Any poor
decisions would result in the business suffering. But I
believed there was an untapped market for the hologram
designs that I had been developing over three years. I was
passionate about my design ideas.’
‘In Year 12 I decided I wanted to run my own business.
However, I realised I needed to gain more experience in
graphic design as well as business management.’ Consequently, while undertaking her graphic design course
Angela also completed the Certificate IV Business Management course at the local TAFE. ‘The TAFE course
Understand
1. What is the role of an entrepreneur in our
economic system?
2. What entrepreneurial characteristics do Yolanda
Zurack and Bill Gates have in common?
3. List the possible non-monetary rewards of being
an entrepreneur.
NueVue Graphics employs creative, talented people.
By age 26, Angela’s venture into the business world
has become financially and personally rewarding. ‘There
are two main reasons for the success of the business.
Firstly, I manage to keep overhead costs down which
results in a positive cash flow. Secondly, I work hard at
developing a sound customer base by delivering outstanding customer service. The business’s success has
also helped me develop a sense of worth. There have
been some difficult times, but overall I have gained enormous self-satisfaction from what I have achieved.’
(b) What risks does Angela face as an
entrepreneur?
(c) Identify the reasons for the success of
NueVue Graphics.
(d) Why do you think it is important for an
entrepreneur to prepare a business plan?
(e) Predict what may happen to Angela’s
business over the next two years.
Think
4. Why do you think it is important for an
entrepreneur to be motivated by both monetary
and non-monetary rewards?
Teamwork
6. (a) As a class, brainstorm the advantages and
disadvantages of being an entrepreneur.
(b) Suggest why people are motivated to start
their own business even though they face a
number of possible risks.
Communicate
5. Read the newspaper article above. Then, in small
groups, answer the following questions.
(a) Identify the entrepreneurial characteristics
exhibited by Angela Wong.
Use ICT
7. Visit the website for this book and click on the
Enterprise Network for Young Australians (ENYA)
weblink for this chapter (see ‘Weblinks’, page xii).
Outline the role of ENYA.
263
CHAPTER 12: ECONOMICS IN ACTION
12.7
GOING INTO BUSINESS
No individual or group of people actually organised Australian business as we know it today.
Rather, over the years, individuals have established businesses for their own particular reasons.
In 2006, there were approximately 1.4 million
businesses operating in Australia, of which 97 per
cent were small businesses. This collection of individual businesses forms what we refer to as the
Australian business community.
There are three main ways of going into
business:
• setting up a new business from scratch
• operating a franchise
• purchasing an existing business.
As shown in the figure below, many prospective
small business owners find it difficult to select an
option. However, the most common option is
commencing a new business, with 70 per cent of
all new small businesses starting this way. The
purchasers of existing businesses account for
approximately 20 per cent of all start ups. The
remaining 4 per cent are businesses that have
been:
• inherited from a family member
• restarted from a previously failed business
• bought by employees from the owners.
Choosing between the three main options is
sometime quite difficult; each has advantages
and disadvantages.
WORK FOR
SOMEONE
ELSE
COMMENCE
YOUR OWN
BUSINESS
ECONO
PURCHASE AN
ESTABLISHED
BUSINESS
OPERATE AS A
FRANCHISE
COMMENCE A
BUSINESS FROM
SCRATCH
There are approximately 747 franchise systems
and 50 000 franchised outlets currently operating in Australia.
Monique’s
Restaurant
An interview with
Monique Etuille,
owner of Monique’s
Restaurant.
Monique, what made
you want to own a
restaurant?
Ever since Year 9 I wanted to
be a chef and run my own restaurant. I was 15 years old when I
started working as a kitchen hand in a friend’s restaurant. I worked
on a casual basis. This experience gave me a good understanding
of the restaurant scene and my passion for fine food.
Do you enjoy your work? Why?
Working as a chef involves hard work and long hours. You are
always working quickly and nearly always under pressure.
However, the creative satisfaction in producing great food that
not only looks good, but tastes good too, makes it worthwhile.
Would you prefer to work for yourself or be a salaried
employee?
I prefer working for myself. Not only does this allow me to be
creative with my dishes but it allows me to generate my own
income.
Why did you establish a new business instead of
purchasing an existing restaurant?
In the beginning, I weighed up the advantages and disadvantages
of each option. The main advantages of setting up a new business
were that I would have freedom of choice to set up the business
exactly as I wished; there was no goodwill which had to be paid
for; and importantly, because my funds were limited, I was able to
begin on a smaller scale. The main disadvantage was the high
risk of failure because there was no previous business reputation
or existing customer base to draw upon. This also made it more
difficult to obtain a loan.
On the other hand, the main advantage of purchasing an
existing business is that it is already operating and everything that
is associated with the business is included in the purchase. This
includes stock, equipment, premises, an existing customer base,
goodwill and so on. If the business has a good reputation, then
sales to existing customers will generate instant income. As well,
a proven track record will make it easier to obtain finance.
Which option do I select?
264
HUMANITIES 2
ICT
Understand
1. Why did Monique decide to establish a new
business?
2. According to Monique, what are the benefits of
being self-employed?
3. Outline the main advantages and disadvantages
of:
(a) starting a new business from scratch
(b) purchasing an existing business
(c) operating a franchise.
One way of representing this information is to
use a ‘T’ table. A ‘T’ table for starting a new
business from scratch has been started for you.
Starting a new business from scratch
Advantages
Disadvantages
1. Owner has free choice
4. What factors did Monique consider when
selecting a suitable location?
5. Outline the benefits of employing suitably
qualified staff.
Teamwork
6. As a class, brainstorm why business franchise
systems are so popular.
7. In pairs, predict what may happen to Monique’s
business over the next two years.
Think
8. Consider a small business that you would like to
commence. Which of the three business options
would be most appropriate? Give reasons for
your answer.
Use ICT
9. Construct a web page for Monique’s restaurant.
Provide a facility for ordering takeaway food
online. You may wish to use FrontPage or a
similar software package.
Worksheets
12.4 You’re the DJ
However, the main disadvantages are the existing image of
the business may be difficult to change; it may be difficult to
assess the value of the goodwill; and, the success of the
business may have been due to the previous owner’s
personality and contacts and this may be lost when the
business is sold.
Do you think you made
the right decision?
Yes. Even though it was hard
in the beginning, with plenty of
minor ‘dramas’, I would make
the same decision again. It is
immensely satisfying to know
that I am creating something
from nothing.
Did you consider
operating as a franchise?
Not really. I did not want a
franchisor controlling how I
operate my business. Nor did
I want to share my profit or
pay a fee to trade under their
name. However, if I lacked
experience I would have
chosen this option because
operating under a wellrecognised brand and using a
successful business formula would reduce the risk of failure.
What factors did you take into account when deciding
where to locate the restaurant?
The two most important factors are customer convenience
and visibility. Without these, the customer may not make the
effort to find the business. Consequently, I wanted a location
in the main street with easy access to parking. I was prepared
to pay a high rent. I wanted to avoid establishing the business
in a low rental area as this can create a bad image.
Was it difficult
finding suitably
qualified staff?
No. I have plenty of
contacts in the
industry. I wanted to
select employees
whose business
approach
complemented
mine. Selecting the
wrong staff can lead
to friction between
staff members, low
morale and
unhappy
customers. I am
proud of the team.
They are
committed, and
all accept
responsibility. It is
more like a family
atmosphere than a
traditional workplace.
Did you buy or lease the equipment?
I leased the expensive items such as fridges, ovens and the
dishwasher. The advantage of leasing is that I did not have
to make a large outlay and payments made for the lease are
an expense and therefore tax deductible. Cutlery, tablecloths,
glasses and so on I purchased from a wholesaler.
Finally, Monique, how’s business so far?
Well, as you know, I set up Monique’s in 2003. Since then,
I have been pleased to see that there is a growing customer
base. I am very satisfied with the profits so far. So, eat up and
bon appetit!
265
CHAPTER 12: ECONOMICS IN ACTION
DE
MA EA
SY
www.jaconline.com.au/ict-me
Web pages
12.8
FORMS OF BUSINESS
OWNERSHIP
There are four different legal structures to
choose from when deciding how a business is to
be owned and operated. These structures are
described in the diagram.
By far, the most common legal structure is the
sole trader or partnership. This is because 97 per
cent of all privately owned businesses are small,
and these structures are the simplest and
cheapest type to establish. Some businesses start
small but later decide to overcome their limited
size and growth potential by incorporating and
becoming a company.
Proprietary (private) company
A private company usually has fewer than 50 private owners
called shareholders. These businesses tend to be small to
medium in size. Often, they are family-owned. Shares in private
companies are offered only to those people the business wants
as part-owners. This is why it is called a ‘private’ company.
A private company must have the words ‘Proprietary Limited’,
abbreviated to ‘Pty Ltd’, after its name. The main
advantage of a private company is that
shareholders have limited
liability. This means that if the
business cannot pay its debts,
a shareholder loses only the
money she or he has
invested in the business.
Sole trader
A sole trader is a business that is
owned and operated by one
person. It is the most common type
of business in Australia.
A sole trader business can
operate in almost any field. Usually,
however, they are stores, cafés,
newsagents and hairdressers as
well as trades such as plumbers
and electricians.
The sole trader receives all the
profit and suffers all the losses. He
or she has unlimited liability. This
means he or she can be forced to
sell personal assets such as the
house or car to pay for business
debts.
A sole trader usually has only one
person’s name in its business name,
for example Greg’s Electrical Shop.
Partnership
A partnership is a business
usually owned and operated by
between two and 20 people,
called partners. The partners
share their profits and losses,
usually equally. Together they
decide how best to operate the
business. It is common for people with similar skills, such as doctors,
solicitors and dentists, to form a partnership. Partnerships tend to
have the names of the partners in the business name, for example
Harries and Davidson Accountants. Partnerships have unlimited
liability.
266
HUMANITIES 2
are two types of companies, private and
.A
company has fewer
than 50 private shareholders. Shares in
public companies are bought and sold on
the
. Companies have
liability, and have gone through the process
of
.
2. What is meant by the terms ‘incorporation’
and ‘perpetual succession’?
3. Suggest why sole traders and partnerships
are the most common legal structures.
4. In what ways are a private company private
and a public company public?
5. Explain the difference between limited and
unlimited liability.
Public
company
A public
company can
have an
unlimited
number of
shareholders.
The general
public may buy
and sell shares in
these
companies. This
is done through
the stock
exchange. Most
public
companies are
large. Examples
include Westfield
Group, Billabong and
Woolworths. Shareholders in public companies have limited liability.
A public company must have the word ‘Limited’, abbreviated to ‘Ltd’,
after its name.
All companies are incorporated enterprises or have gone through
incorporation. This means the company has become a separate
legal entity from its owners (shareholders). Consequently, the
company can sue and be sued, can own and sell property, and has
perpetual succession — it will continue to exist when the owners
change.
Think
6. In your notebook, complete this table to show
how each of the businesses below is owned. The
first one has been completed for you.
Sole
trader
Beck’s Pty Ltd
M&M Communications
Tip Top Pty Ltd
Tom Wilson Plumbing
Public
company
CGM Ltd
Tyler & Kelly
Tai’s Take-away
Global Ltd
Communicate
7. In small groups, decide what form of business
ownership is appropriate for:
(a) a small bicycle shop that offers personal and
professional advice by the owner
(b) a national retail chain that would require
$589 million to establish
(c) a suburban hairdresser
(d) a medical clinic.
In 2005, approximately 81 per cent of all Australian businesses were either a sole trader or
partnership.
Understand
1. Select the most appropriate word from the list
below to complete the sentences that follow.
two
personal
private
liability
Private
company
Beck’s Pty
Ltd
ECONO
public
sole trader
stock
exchange
Partnership
Use ICT
8. To find out more about the different forms of
business ownership, visit the website for this
book and click on the Business Victoria weblink
for this chapter (see ‘Weblinks’, page xii). When
must a sole trader register his or her business?
20
limited
unlimited
incorporation
A business entity with one owner is called a
. This person faces
liability,
which means he or she can be forced to sell his
or her
assets to pay for the debts of
the business. Partnerships normally consist of
between
and
partners.
Partnerships have unlimited
. There
Dig deeper
9. Arrange to interview the owner of a local private
company. Prepare a report outlining the
following information:
(a) the full name of the business
(b) a brief history of the business
(c) the business’s main activity
(d) the main challenges involved in operating
the business.
267
CHAPTER 12: ECONOMICS IN ACTION
Check & Challenge
K NOW LEDGE
FO R MS O F B U S I N E S S
OW N E RS H I P
1. Draw a diagram to show the flow of money,
goods and services between Australian
1. The following words have been scrambled.
consumers, businesses and governments. Label
Unscramble them and use each one in a
the arrows on the diagram.
sentence.
2. What is the government’s main role within the
economy?
vtpirae ympcaon hpertpnsiar
esol rratde
3. Copy the following list into your notebook.
cuplib ympcaon
rfeishcan
rnicprootaori
Write next to each occupation the usual income
type the occupation falls into.
2. How does a partnership differ from a sole trader
(a) teacher
business? What disadvantages of sole trading
(b) shareholder
does the partnership structure tend to minimise?
(c) elderly retired person
3. What does the term ‘limited liability’ mean and
(d) self-employed electrician
to whom does it apply?
(e) pop group
4. Briefly outline the reasons why people save.
5. List three fixed and three variable expenses.
6. Why are variable expenses easier
to modify than fixed expenses?
7. Complete these sentences:
(a) You should save part of your
income because……………….
(b) Preparing a budget should
As you enter the supermarket you encounter your first obstacle: a shopping
help me …………………… .
trolley with a mind of its own. After taming the ‘beast’, you set off cautiously, for
(c) To stop money ‘burning a hole
you have entered into a game of enticement where the retailer has cleverly set
traps to ensnare the unsuspecting consumer. Traps such as music, lighting,
in my pocket’ I can
pleasant aromas from the bakery, eye-catching display techniques and, worst of
…………………….. .
all, the rearrangement of the store to divert you to new aisles, pepper your
(d) Saving money is difficult
journey. After dodging the tempting specials at the end of each aisle and juggling
because
an overflowing trolley, you make your way to the checkout. Which aisle to line
…………………………… .
up in? The ‘express’ aisle moves at a snail’s pace. Never mind, just pick up (and
(e) Wise financial management
later purchase) a magazine while you wait — another trap. With the trolley
allows me to
unloaded, and goods scanned and bagged, you now
……………………………
take a leap of faith and hope the EFTPOS transaction is accurate. Leaving, you push the errant
trolley to your car, once you remember where you
parked it. You breathe a sigh of relief. How can
this be called ‘convenient’?
1. Lara is asked to work an extra
(a) Do you agree or disagree with the sentiments
four-hour shift. The overtime rate
expressed by the writer? Give reasons for
is time-and-a-half. She is normally
your answer.
paid $15.00 per hour. What will be
(b) Is this article based on fact or impression?
her total income for this shift?
How can you tell?
2. Your stockbroker purchases
(c) Investigate and report on the changes that
$10 000 worth of shares in U-Bute
have occurred in supermarket shopping over
Enterprise Limited on your
the last 50 years. Why have these changes
behalf. She charges you a
occurred and who has benefited, the concommission of 2.5 per cent. How
sumer or the retailer?
much will you have to pay for her
services?
3. A real estate agent sells a house for $525 000. Her
commission is 3 per cent. Calculate her total
commission income for the sale of this house.
CO M PRE H E N S I O N
Supermarket shopping – at your
convenience
CALC U LAT ION
268
HUMANITIES 2
DEMA ND AND
SUPP L Y MODE L
APP LI CATI O N
It is possible to show on a diagram how the forces
of demand and supply interact to determine the
prices of goods and services. Examine the diagram
below and then answer the questions by circling the
correct response.
(a) At price $500, consumers will demand
1000/5000 mobile phones and businesses will
supply 1000/5000 units. Demand is greater/less
than supply and a surplus/shortage of mobile
phones exists. Consequently, the price will
rise/fall.
(b) At price $200, consumers will demand
4000/2000 mobile phones and businesses will
supply 4000/2000 units. Demand is greater/less
than supply and a surplus/shortage of mobile
phones exists. Consequently, the price will
rise/fall.
(c) At price $300, consumers will demand 3000/2000
and businesses will supply 3000/2000 units.
Demand and supply are/are not equal and the
prices will remain unchanged for a while.
Demand
500
Price $
400
300
200
100
0
Market demand and supply
— mobile phones
0
1
1. What makes a good (e.g. a PlayStation) or service
(e.g. a haircut)
(a) more expensive
(b) cheaper?
2. What is the major motivating factor for a person
wanting to start up his or her own small
business? Would you be motivated by this
desire? Give reasons for your answer.
3. List and explain some techniques retailers use to
tempt us into impulse buying. The first one has
already been completed for you.
Techniques used by retailers to encourage
impulse buying
Technique
1. ‘Sale’ prices
Explanation
You think you are getting a
good bargain
4. Write a report on why you should plan your
finances very carefully before entering into any
type of credit contract. In your report, comment
on the following:
(a) what is credit
(b) different types of credit
(c) interest rates
(d) repayments
(e) budgeting, to avoid the problem of too much
debt.
5. Suppose you are a part-time employee working
for a sole trader. The owner has offered you a
35 per cent partnership and you are going to
accept. Prepare a list of questions you should ask
the owner before you sign the partnership
agreement.
Supply
6. ‘It has been said that
when business produces
a wide range of goods
and services, as we do in
Australia, all producers
(sellers) compete for a
share of the consumer’s
dollar.’ Explain what is
meant by this statement.
7. Explain, using a current
example, how the desire
for profits forces
businesses to produce
2
3
4
5
6
those goods and services
Quantity ’000
most in demand.
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CHAPTER 12: ECONOMICS IN ACTION