56 terms

IB Economics Micro economics

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Foundations
In economics, the term microfoundations refers to the microeconomic analysis of the behavior of individual agents such as households or firms that underpins a macroeconomic theory (Barro, 1993, Glossary, p. 594)
Positive Economics
Study of economics based on objective analysis, Economists, what IS and HAS occured in an economy for any statement about the future. (the branch of economics that concerns the description and explanation of economic phenomena...)
Normative economics
Concerns itself with valve judgements, theoretical scenarios, for future
Scarcity
the basic economic principle: the gap between limited scarce resources and unlimited wants
economic growth
the capacity of an economy to produce goods and services, from one period to another
economic development
improvement of the economy of a developing country... improvement of factors such as wealth, education, working conditions, market conditions
FOP
describes inputs that are used in production of goods and services in order to make economic profit
Choice and opportunity cost
the opportunity cost of a choice is the value of the best alternative foregone/ not taken
resource allocation
process of managing assets in a manner that supports an organization's strategic goal
equity
fairness in economics / assets or liabilities: the value of the shares issued by a company.
"he owns 62% of the group's equity"
microeconomics
the part of economics concerned with single factors and the effects of individual decisions.
positive externality
a benefit that is enjoyed by a third party as a result of an economic transaction
demerit good
a good that is overconsumed, and considered as unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effect on consumers
negative externality
cost that is suffered by a third party as a result of an economic transaction. The producers and consumers are the first and second parties, and third parties include any individual, organization or resource directly affected
externality
a consequence of an economic activity experienced by an unrelated third-party, it can be positive or negative
market failure
is a situation in which the allocation of goods and services is not efficient. That is, there exists another conceivable outcome where an individual may be made better-off without making someone else worse-off.
price floor
when a government- or group-imposes price control or limit on how low a price can be charged for a product. A price floor must be higher than the equilibrium price in order to be effective.
price ceiling
the maximum price a seller is allowed to charge for a product or service
incidence of taxation
an economic term for the division of a tax burden between buyers and sellers. Tax incidence is related to the price elasticity of supply (PES) and demand (PED), and when supply is more elastic than demand, the tax burden falls on the buyers.
Ad valorem taxes
(Latin for "according to value") is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT)
YED
Income inelastic This means an increase in income leads to a smaller % increase. in demand. Therefore 0> YED <1. Firms will make use of YED by producing more luxury goods during periods of economic growth, similarly there will be less demand for inferior goods. % D Qty Demanded divided by % D in income
Game theory
A modeling technique that accounts for strategic behavior of economic agents reacting to the actions of others.
Inferior good
A good where quantity demanded decreases when consumer income increases (there is an inverse relationship between quantity demanded and income).
XED
% change in qty demanded good A/ % change in price of good B
PES
% change in quantity supplied/%change in price
PED
% change in quantity demanded/%change in price .. percentage change= difference/original number * 100
Producer surplus
Difference between the amount a producer of a good receives and the minimum amount the producer is willing to accept
Consumer surplus
The measure of consumer benefit. When the consumer is willing to pay more for a given product than the current market price.
Subsidy
Benefit given by the government to groups or individuals in the form of cash payment or tax reduction
The law of supply
As the price of a good or service increases, the quantity of goods or services produced will increase as well
Normal good
Good or service that experiences an increase in quantity demanded as the income of an economy rises
A market
Market medium that allows buyers and sellers of a specific good or service to facilitate an exchange
Price discrimination
The action of of selling the same good or service at different prices to different buyers in order to maximize sales and profits.
Non price competition
Oligopolistic find ways other than price to maximize profits. Service, design, appearance. Advertising plays a pivotal role in oligopolies.
Oligopoly
Defining elements of an oligopoly and 'few' and 'large', where there may be hundreds of firms but only 4 or 5 dominate the market.
Monopolistic competition
A market structure where there are a large number of firms producing similar goods which are all differentiated
Monopoly
The assumption in economic theory that there is one firm only, a pure monopoly that holds market shares anywhere between 25-75-100%.
Barriers to entry
Existence of costs preventing new competitors from easily entering an industry
Productive efficiency
When it is producing at the lowest point of the average cost curve. At its ppf curve
Allocative efficiency
Achieved if society produces enough of a good or service so that MB=MC. So that society is getting the good and service it wants most.
Economies of scale
Refers to specific benefits enjoyed by large firms that smaller ones cannot.
- better prices for raw materials
-lower costs
-lower average shipping and exporting.
Abnormal profit
The extra profit above normal profit that occurs when AR=ATC. Provides incentive for other firms to enter the market.
Normal profit
Is the minimum level of profit needed for a company to remain competitive in the market = to 0.
Economic profit
Difference between revenue received from sale of an output and the opportunity cost of the inputs used.
Diminishing marginal returns
An increasing number of employees causes the marginal product of another employee to be smaller
Asymmetric information
A market failure in which one party has more or better information than the other.
- consumer is subject to sophisticated marketing.
- when individuals don't take full responsibility.
Common access resources
Natural resources over which there is no private ownership and available to everyone. Their existence give rise to tragedy of the commons; natural resources are degraded rapidly by private individuals who enjoy short term benefits but are neglectful or its LR depletion.
Public goods
They are extreme examples of merit goods, provided by the government.
Non excludable
If the producer cannot prevent individuals from enjoying its benefits.
-street lamps
Whareas an ice cream is excludable
Non rivalrous
If one persons consumption of a good or service doesn't prevent others from enjoying it.
-national defense
Merit goods
Those in which positive externalities occur and are underproduced. Governments advocate policies to promote them. Subsidizing by direct payment bro reduced taxation.
Direct tax
Tax paid directly by an individual or organization to the imposing entity.
Indirect tax
Tax that is paid to the government by one entity in the supply chain.
Supply
Total amount that is available of a good or service to consumers.
Law of demand
As price for a good or service goes up, consumer's demand for it will decrease.
Demand
Consumer's desire to not for a specific goods or service.
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