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Economic Activity Overview

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Economic Activity Overview

Coastview is a fictional Australian town. Use the scenario and data below to investigate how economic activity creates goods and services, income and employment. Show working for calculations. Dollar amounts are in Australian dollars (A$).

A busy week in Coastview

Mei grows vegetables on her farm and sells them to a local café. The café uses the vegetables to make lunches, which it sells to customers. It pays workers wages and buys electricity from an energy company. A neighbour also cooks dinner at home for their family without being paid. The town council pays a contractor to repair a public footpath.

1.Which activity in the Coastview scenario is most clearly market economic activity?

The neighbour cooks dinner for their family without pay.
Mei sells vegetables to the café.
A customer eats lunch at home.
A resident walks along the footpath.

2.Explain why the neighbour’s unpaid cooking is generally excluded from measured GDP, even though it provides a useful service.

3.Classify each activity as market production, non-market household production, or government-funded market production: (a) Mei sells vegetables to the café; (b) the neighbour cooks at home without pay; (c) the council pays a contractor to repair the footpath.

Coastview’s annual production

The table shows the value of final goods and services produced in Coastview in one year. Values are in A$ millions. Count only final output here; intermediate inputs are not listed.

Producer

Final output (A$ m)

Vegetable farm (sales to final users; excludes café purchases)

2.4

Café

3.1

Energy company

4.5

Other producers

10.0

4.The final-output values are A$2.4 million for the vegetable farm, A$3.1 million for the café, A$4.5 million for the energy company, and A$10.0 million for other producers. Calculate their total. Give your answer in A$ millions.

5.What percentage of the total output in the table comes from the energy company? Show your calculation to one decimal place.

6.Suppose the café buys A$0.6 million of vegetables from Mei, and that amount is already included in the café’s A$3.1 million of final output. Why should an economist not add the A$0.6 million again when calculating total GDP?

A change in output and population

Coastview’s real GDP rises from A$20.0 million to A$20.6 million over a year. Over the same period, its population increases from 10,000 to 10,100 people. Use these figures for Questions 7–8.

7.Calculate Coastview’s real GDP growth rate for the year.

8.Calculate real GDP per person before and after the changes. Then state whether it rose or fell. Round to the nearest dollar.

9.A local commentator says, “GDP per person has risen, so every Coastview resident must be better off.” Explain one reason this conclusion is too strong.

10.When the café pays its workers wages, identify who receives the income and name one way that income could return to a business in Coastview.