than diamonds?

If you answered yes to the first two questions and no to the last three, you already have some basic understanding of economics. 

Our needs and wants are virtually

unlimited and many of us would like to purchase more goods and services.

Goods are physical items you can feel and touch, such as clothes, a skateboard, an iPad or even food.

Services are non-physical things that assist us in some way or that we experience, such as attending

a concert, having a haircut or getting help from a tutor.

At a very early age you would have learned that you can’t have everything you want. It’s the same in the wider economy. We have to make choices about what can be

produced and therefore consumed, because resources (the stuff used to make goods and services) are limited. Choices must be made about how best to use the limited resources available to us.

Think of them as the 'ingredients' used to make all goods and services.

The issue that we have to deal with is that all of these resources are limited.

company TRU, average spending per week ranged from $56 for those aged 12-13 to $192 for 18-19 year olds. The study found that the most popular items to spend money on were clothes, transport, mobile phones, electronics and fast food. Favourite brands were Apple,

Coca-Cola, Nike, McDonald’s and Adidas.

Teenagers receive money from parents, part-time jobs, gifts and allowances. According to the Australian Bureau of Statistics (the ABS) a third of full-time secondary school students had a part-time job.

Many teenagers now have the technology that allows businesses to market and advertise their products. Advertising through social networking sites and emails

keep teenagers abreast of the latest consumer goods on the market. Video games have also become a popular marketing tool to reach teenagers.

Economics is about how to make the best choices with our limited resources. At an individual level, for

example, purchasing a car worth $20 000 means that person cannot afford their next best preference – going on an overseas holiday. 

Forgoing the overseas holiday

is the real cost of buying the car. Economists refer to this as OPPORTUNITY COST – the cost of the next best alternative use of resources.

of economic systems, but all of them must answer the three economic questions...

Imagine you are stranded with your classmates on a remote island, completely cut off from the rest of the world. In order to survive you would have to develop a mini-economic system. 

‘What to produce?’ will depend on what is available – perhaps fish and coconuts are readily available. 

The next question is ‘How to produce?’ Perhaps someone will cook the fish on a camp fire and someone else will use a rock to split the coconuts.

Once you’ve produced the items you will need to decide ‘for whom to produce?’ Perhaps each classmate will be allocated the same amount of produce.

it is important to understand that political beliefs influence the economic system chosen. Politics and economics in a country are very tightly interwoven.

In a CAPITALIST ECONOMY there is a belief that resources (natural, labour and capital) used in production should be owned privately (i.e. by citizens of the nation rather than the government). Producers are motivated to provide goods and services for consumers with the aim of making a profit

for themselves.

In a SOCIALIST ECONOMY, it is believed that social ownership of resources is much fairer i.e. the resources are owned and managed by the government (aka 'the state'), on behalf of the citizens. 

The reality is that these two systems are extremes and are unrealistic (or have proven to be ineffective) in totality. In the real world we have a range of economic systems which incorporate aspects of both extremes as follows.

Custom and religious beliefs may influence the question of ‘how to produce’. 

Production is usually shared, solving the question of ‘for whom to produce’. 

There are very few subsistence economies in existence. Some villages in rural Alaska are self-sufficient, with its inhabitants fishing and hunting for food.

an actual physical space. 

Producers decide ‘what to produce’ based on what consumers want and the price they are willing to pay. 

‘How to produce’ is solved by the producer choosing the most cost-effective method of production.

The question of ‘for whom to produce’ is determined by who has the money to pay for the goods and services. 

The majority of productive resources (labour, natural and

capital resources) are owned by individuals and firms. Most countries, including Australia, the United States, Germany, France, the UK, Malaysia and Japan, have

adopted a market capitalist economy.

individuals and firms own the productive resources but the government determines ‘what to produce’, ‘how to produce’ and ‘for

whom to produce’. This type of economy does not currently exist anywhere in the world.

government (‘the state’) on behalf of the people of the country. The former Socialist Federal Republic of Yugoslavia is considered to have had a market socialist economy.

that is commonly used to explain how different economic and

political systems work. You can use it as a tool to understand

the main differences between the economic systems described above.

consumers earn wages (by providing the resource of labour) to pay for these goods and services.

One important characteristic or feature of Australia’s economy is free enterprise, where individuals can set up a business and make a profit. Businesses are expected to pay tax to the government and comply with regulations. 

Businesses benefit the economy because the government is able to collect more tax (boosting its revenue), consumers are provided with goods and services, and individuals are employed and earn a wage. 

The government and financial institutions also play an important role.  Economic decisions made by any of the participants will have economic consequences. For

example, if you decide to set up your own IT business, you will need capital equipment such as computers, desks and chairs. People will be employed making these capital products, and you may also have to employ IT

consultants and administrators to help you run the business. These people will in turn earn wages, and

they will spend their earnings on more goods and services after they have paid tax to the government.

Some of the wages earned will also be saved by financial institutions, which will then use those savings to lend to consumers. In this way, participants in the Australian

economy are interconnected.

The overseas sector, where we are linked to international markets, is another key part of the Australian economy. Australians buy imported goods and services from other countries and we also export goods and services overseas. This trade with other nations directly affects

our economic welfare. 

There are many factors that influence trade, especially the constantly changing exchange rate. The exchange rate is the value of one country’s currency when swapped with another country’s currency. For example, $1 in Australian currency might be worth 72 US cents. If the Australian dollar rises in value against other currencies, it means Australian exports will be more expensive and imports cheaper. If the Australian dollar falls in value against other currencies, Australian exports will become cheaper and imports will become more expensive.

worldwide, or global, economy. It is a process that links the countries of the world together which results in the exchange of products, views or culture. 

Australia is linked to the global economy because of:

• trade with other nations – we import goods and services made overseas into Australia, and export

goods and services from Australia to other countries

• foreign direct investment – foreign funds used to establish new or existing businesses in Australia

• an international market for labour – Australians work overseas and people from other countries come to work in Australia

• technology – allowing us to quickly and efficiently communicate with potential customers all over the

world

• migration – settlers come to live in Australia.

Australian businesses are crucial to the economy’s success and have had to adapt to the changing business environment. Many businesses now source products

from overseas or have part or all of their products made overseas.

b. Workers produce what they need to survive and money is not used.

c. This is a market economy in which productive resources are owned by the state.

d. This is a market economy in which productive resources are largely owned by firms and

individuals.

e. There is no money, and people only produce enough to meet their own needs.

called ‘choco pies’ on the black market. Why might there be a black market for items such as chocolate

biscuits in North Korea?

a. What service are you providing for the consumer?

b. What does the consumer give you in return for cutting their hair?

c. List some of the costs you incur as the owner of your hairdressing salon.

d. In what ways does the government affect your hairdressing business?

e. Why might you need the services of a FInancial institution such as a bank in running your business?

Compete the quick quiz below to  find out if you have what it takes to be a good saver.

1. Have you ever saved to buy something you really wanted but couldn’t afford straight away?

2. Before you spend money on

something, do you ask yourself

whether you really need it or not?

3. Have you thought about doing extra work like babysitting, walking dogs, or delivering papers to earn some extra cash?

4. Have you considered ways your family could save money on things such as energy bills, food or clothing?

If you answered ‘yes’ to any of those questions, chances are you already know something about saving and are a reasonably good saver.

There are two simple ways to increase the amount of money you can save. This really is not rocket science...

1. Earn more – you may have a casual job, so it is likely you will be able to save some of the money you earn, even if it is just a small amount. You could also earn more through investing your money. 

2. Spend less – give yourself a ‘ financial check-up’ by

monitoring what you spend your money on. Identify areas where you might be wasting money and hold

off buying items you can easily live without.

repayments cannot be made.

Even if you pay the minimum monthly credit card repayment you will most likely be paying a considerable amount in interest. 

The MoneySmart website has a credit card calculator that allows you to calculate how much interest you would pay if you only pay the

minimum monthly repayments. Based on an 18-percent interest rate it would take 33 years to pay a

$5,000 credit card debt off. The interest you would repay on this debt would be $12,181.

One Californian couple recently reaped the rewards oft his practice when they came across some rusty

cans containing gold coins worth ten million dollars. The cans were buried under an old tree on their

property.

Those who keep their money at home, however, risk losing it. A Chinese couple recently found their four year-old son had ripped up their savings for a house deposit. Their little boy was regularly in the habit of ripping up books – a habit they thought was harmless until he destroyed their life savings.

In another alarming incident in Tel Aviv, Israel, a daughter surprised her mother with a new mattress,

only to find out her mother’s life savings was hidden in the old one she had thrown away!

It’s not advisable to keep savings at home for another reason – it will be earning no interest. Money kept at home will also lose value over time because of rising prices. For example, the same basket of items

valued at $4000 in 2009 would cost $4612.58 in 2015, because prices on average rose by 2.6% per annum

over this period. Theft or fire could also destroy savings kept at home.

1. Identify what you would really like to have in the future and how much it will cost.

2. Identify the amount of money you can put aside per week or month.

3. Identify how long it will take you to reach your goal. For example, if your goal is to go on a holiday costing $2000 and you can save $100 per month, it will take you one year and eight months to reach your goal.

is called investing. 

Putting money in the bank, for

example, will most likely mean the bank will pay an additional sum of money, called interest. The amount

of interest you earn depends on the amount deposited, how long the deposit is left in the bank, the current interest rate and what type of interest is being paid.

Interest is often calculated per annum, or year. This is how to calculate simple interest:

• Take the amount deposited (called the principal), multiply by interest rate, then multiply by length

of time (e.g. number of years)

• For example, if you deposit $1000 in an account at 10 per cent for two years it would be worth $1200.

Compound interest is interest added to the principal. This amount is then used to calculate interest.

For example, if compound interest is calculated on a deposit of $1000 for two years at 10 per cent, $100

interest would be earned in the first year. Then, in the second year, the interest rate would be calculated

on $1100, giving a total of $1210. 

a simple interest

b compound interest.

with that money in the future.

Put simply, investing is a way of making your money work for you (getting your money to earn you more money). Investing can be a good way to help you increase your personal financial wealth.

Putting your money in an Australian deposit-taking institution such as a bank is generally considered low risk. Investing in the sharemarket or in property is considered to carry a higher risk. 

Higher investment risks come with the potential to earn higher rewards, but there is also that increased risk for higher losses.

Each individual has to decide the level of financial risk they are willing to take. 

Another factor when considering risk is the timeframe of your personal investment goal. If you have 25 years to wait for your investment return you may decide to take a higher risk, understanding that there may be some short-term losses. 

However, over a more substantial timeframe, your investment is expected to grow. For example, the price of a property may have

fallen in the short-term, but over a longer period the price may increase as the property market improves.

should also consider the likely money that can be made from the investment – sometimes called ‘return on investment’. Investors should also consider how readily

they need access to their money. 

For example, money in the bank can be converted to cash more quickly than money invested in a property, which may take months

to sell.

Many people would prefer that decisions about investments are made by a professional, and some

may choose to invest in a managed fund. Money from investors is pooled together and an investment manager decides where the money will be invested. This provides the investor with the opportunity to invest in a wider variety of options, such as equities, property and

fixed-interest investments. 

Managed funds help spread the financial risk – the loss suffered from one poor investment may be countered by other investments in

the fund that have performed well.

There is much to gain and much to lose when investing money. Many people enlist the services of a

financial planner to help them establish and achieve their investment goals.

amount of money.

or not.

a. Janette has $100 000 to invest but the thought of losing any of it means she can’t even sleep at

night.

b. Julian wants to make a reasonable amount of money from his investments and is not overly

concerned if his investments lose value in the short term.

c. Chris has $20,000 put aside to go overseas. He decides to invest the money for a year, but cannot bear to think his investment could lose

money, which might mean he would have to cancel his trip.

should avoid. Putting down the phone or not opening an email from an unknown source – and definitely not clicking on a link – can be the best course of action you could take to avoid being scammed out of your money.

• Charity scams – the scammer poses as a genuine charity and takes advantage of the giver’s generosity.

• Psychic and clairvoyant scams – the victim may be told that they will be in some sort of trouble in future. To avoid this, they inevitably have to pay money for something like a lucky charm. In some cases the victim is threatened with a curse if they don’t pay a fee to the scammer.

• Romance scams – the scammer takes advantage of someone looking for romance.

• phishing emails that pretend to be sent on behalf of your bank asking for account details

• phone calls from a scammer informing you there is a problem with your account, asking you to provide your account details or passwords

• the copying of information from the magnetic strip of an ATM or credit card so that a ‘clone’ of your

card can be produced and used illegally. This is called skimming

involved in a scam.

If you are party to a scam you should report it to the appropriate authority. For example, if the scam involves someone gaining access to your online bank account you should contact your bank immediately. You can also report a scam to SCAMwatch, which is run by the Australian Competition and Consumer Commission (ACCC).

identification, he says he didn’t bring it with him.

B. You receive an email from your bank asking you to confirm your account details with them.

C. Someone you met on a dating site, but haven’t met in person yet, asks you for a loan.

D. You go to the ATM and never cover the keypad whilst entering your PIN. You check your credit card statement and find there are many transactions you know nothing about.

E. You receive a call from a well-spoken young man who lets you in on a secret deal to make money

from shares.

for them to leave the workforce in their early 20s to start a family. 

Today, nearly 60 per cent of the female population in Australia over the age of 15 are either employed or seeking employment. Many of these women now juggle both work and family commitments.

Many men are now choosing to stay at home with their young children.

In addition to these changes, there has also been great change in the industries that people work in. In Australia in the 1960s the manufacturing industry employed 26 per cent of all workers. Today,

manufacturing employs only 8 per cent. Instead, the service sector is now our largest industry. 

Examples of large service industries include tourism and hospitality services, financial and insurance services, education and training services, and healthcare.

Globalisation has also affected the world of work. Some Australian businesses have been unable to

compete against countries such as China that pay lower wages and can therefore produce goods more cheaply.

Some businesses, however, have thrived, and have been able to employ more people and produce new products for larger consumer markets than those found in Australia.

a. Clerical worker

b. Lamplighter (a person who lights street lamps)

c. Shopkeeper

d. Sweeper (a person employed to physically sweep streets and keep them clean)

e. Switchboard operator

f. Iceman (a person who delivers huge ice blocks to people’s homes)

g. Garbage collector

h. Accountant

i. Milkman

j. Store elevator operator

overcoming significant obstacles, and is also prepared to take risks in order to succeed. 

Enterprising individuals sometimes start their own business, while others use their enterprising skills to achieve success working for a company or organisation. An employee might, for example, have a new idea to improve a product or service that really benefits the organisation they work for. Enterprising skills can also be used to promote a  social cause and make a difference to the lives of others.

For example, Social Enterprise Champion Award winner Luke Terry has led the development of a multi-million dollar commercial laundry that will employ long-term disadvantaged people.

in high demand in future. 

Many business experts are saying that individuals with ’soft skills’ (that machines do not have) will be the most sought after workers.

Soft skills are personal skills such as understanding social graces (for example covering your mouth while

coughing), communicating well, managing and leading others and working well in a team. 

Strategic business analyst Jason Widjaja works for a large company and said that while his technical or ‘hard skills’ were good he was ‘marked down in terms of adding value to meetings, workshops, interviews and all those areas where you needed to express and articulate your thoughts more clearly’.

Morgan’s doughnuts are not your regular doughnuts, though. He bakes the doughnuts at home and ‘injects’ his own flavours into them. Some even come with a syringe of flavour for consumers to inject into the doughnut themselves! 

Morgan doesn’t skimp on quality

either, using the best ingredients, such as real butter.

At the age of seven Morgan was inspired by Junior Masterchef and has turned his passion into a growing business. After completing a business degree, Morgan plans to open his own restaurant and café.

Being enterprising encompasses a whole range of skills. Someone, for example, may have a fantastic idea

but lack the determination or project management skills to see their idea materialise into a successful product or service.