1. Factor income is income earned by participating in the production process. Eg. Wages. Transfer income is income earned by someone, and then transferred on to someone else. Eg. Company Tax, or in the form of welfare payments.
2. I) Externalities are the side effects of economic activity, and can either be good or bad. Examples of bad externalities include pollution from factories producing goods, or a good externality (from wiki) is a bee keeper collecting honey from bees, while the Bee produces honey, it also pollenates, the crops around. Some bad externalities, can be resolved by government. For example, by the government signing the Kyoto Protocol, this could lead to producers changing their allocation of resources, and finding other and possibly more efficient ways to produce goods, which will not produce as much negative externalities.
ii) The government intervenes in the market to ensure fair practice in between businesses. Unless it is a natural monopoly, monopolies are not usually desired, especially concerning goods and services, as this gives companies too much market power, and they have the opportunity to maximise their profits, by raising prices, or without competition their products may not be up to an acceptable standard. The government usually wants competition, and one if the microeconomic reforms is competition policy. Other bodies including the ACCC, watch over competition, and aim to ensure that companies are producing as effectively as possible, and collusion between companies is not occurring. An example of the ACCC acting, is denying Coca Cola amatil from buying Berri Juice, as this would have given them too much power over the non-alcoholic drinks.
3 (a)
Definition from Eco Activity 2 - Money Supply (M3) - notes and coins in the hands of the non-bank public, plus bank deposits.
Coblin and Brendan could give better answers to the first couple of questions
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