Jacaranda Key Concepts in VCE Economics 2 Units 3 & 4

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Question 3 (17 marks) Source: VCE 2018 Economics, Section B, Q1 © VCAA

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a. Distinguish between allocative efficiency and dynamic efficiency. (3 marks) b. Explain how a decrease in the price of a complement can affect the demand for a good. Construct fully labelled demand and supply curves to illustrate your explanation. (4 marks)

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c. Describe the difference between a movement along the supply curve and a shift of the supply curve. Construct fully labelled demand and supply curves to illustrate your description. (4 marks)

d. Explain how either externalities OR asymmetric information would result in market failure. (3 marks) e. Explain one government action that might be taken to address the market failure explained in part d. (3 marks)

Jacaranda Key Concepts in VCE Economics 2 Units 3 & 4

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5.8 Review

5.4 Encouragement of skilled immigration as an aggregate supply policy

5.3 The budget as an aggregate supply policy

5.5 Trade liberalisation as an aggregate supply policy

5.6 A market-based environmental strategy as an aggregate supply policy

5.1 Overview

5.7 Strengths and weaknesses of using aggregate supply policies — review

4.16 Review

4.12 The transmission mechanisms of monetary policy and their influence on the level of aggregate demand

macroeconomic goals and the affect on living standards

4.13 The RBA’s monetary policy stance

domestic macroeconomic goals and living standards

4.11 Conventional monetary policy and how the RBA can affect interest rates

4.10 Definition and aims of monetary policy, and the role of the RBA

achievement of domestic macroeconomic goals and living standards

3.2 The gains from international trade

3.1 Overview

domestic macroeconomic goals and living standards

2.13 Review

impact on the level of government debt

4.5 The budget outcome

4.6 The stance of budgetary policy — is it expansionary or contractionary?

of domestic macroeconomic goals over the past two years

2.11 The goal of full employment

2.5 The five-sector circular flow model to understand the macro influences on domestic economic activity

domestic economic conditions

domestic economic conditions

2.10 The goal of strong and sustainable economic growth

macroeconomic conditions

2.9 The goal of low and stable inflation (price stability

2.4 The business cycle and its cases

2.3 BACKGROUND KNOWLEDGE Nature, effects and measurement of economic activity

2.2 The difference between material and non-material living standards and factors that may affect each

2.1 Overview

1.11 Review

1.9 Types of market failure and government intervention to address market failure in Australia’s economy

1.10 Government intervention in markets that unintentionally leads to decreased efficiency

1.8 The meaning and significance of price elasticity of demand and supply

of resources

1.6 Microeconomics — the market as an important decision maker in Australia’s economy

1.4 Choice, opportunity cost and efficiency in resource allocation

1.2 BACKGROUND KNOWLEDGE What is economics?

1.3 Relative scarcity