IB Economics SL Vocabulary: Microeconomics
Terms in this set (45)
any kind of arrangement where buyers and sellers of a particular good, service or resource are linked together to carry out an exchange
describes characteristics of a market organization that determine the behavior of firms within an industry (there are four market structures)
a market structure which: has a very large number of firms in the industry, each firm has no control over the price at which it sells its products, all the firms in the industry sell an identical product, and there are no barriers to entry within the industry
a market structure which: has a single firm in the industry, the firm has significant control over the price at which its product is sold in the market, the firm produces and sells a unique good or service, which cannot be produced elsewhere, and there are high barriers to entry in the industry
a market structure which: has a fairly large number of firms in the industry, each firm has substantial amount of control over the price at which its product is sold, there is product differentiation, and there are very low barriers to entry in the industry
a market structure which: has a small number of large firms in the industry, firms have significant control over the price, products may be differentiated or undifferentiated, and there are high barriers to entry in the industry.
occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market.
refers to the control that a firm has over the price of the product it sells in the market
indicates the various quantities of a good or service the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus
a curve showing the relationship between the quantities of a good consumers are willing and able to buy during a particular time period, ceteris paribus
law of demand
As the price of a good decreases, demand for that good increases. As the price increases, demand decreases.
determinants of demand
the variables other than price that can influence demand; a change in any determinant of demand causes a shift of the demand curve, which is referred to as a 'change in demand'
when demand for a good increases in response to an increase in consumer income and vice-versa
when the demand for a good decreases in response to an increase in consumer income (when the demand for a good varies inversely with income)
a good that satisfies a similar need of another good; if two goods are substitutes, an increase in the price of one leads to an increase in the demand for the other
complements (complementary goods)
two or more goods that tend to be used together; if two goods are complements, an increase in the price of one will lead to a decrease in the demand of the other
indicates the various quantities of a good or service the firm is willing and able to produce and supply to the market for sale at different possible prices, during a particular time period, ceteris paribus
a curve showing the relationship between the quantities of a good that firms are willing able to produce and sell during a particular time period, ceteris paribus
law of supply
as the price of a good increases, the quantity of the good supplied also increases. As the price decreases, the quantity supplied decreases.
determinants of supply
the variables (other than price) that can influence supply, and that determine the position of a supply curve; a change in any determinant of supply causes a shift of the supply curve, which is referred to as a 'change in supply'
a payment made to the firm by the government, and so has the opposite effect of a tax; subsidies may be given in order to increase the incomes of producers or to encourage an increase in the production of the good produced
when quantity demanded is equal to quantity supplied; the forces of supply and demand are in balance, and there is no tendency to change
the price that prevails in market equilibrium
the quantity that prevails in market equilibrium
the equilibrium price that results when quantity demanded is equal to quantity supplied; also referred to as market price
refer to the setting of prices by the government or private organizations so that they are unable to adjust to their equilibrium level determined by demand and supply, which result in market disequilibrium, and therefore in shortages and surpluses
an upper limit on the price that can be legally charged by sellers of a good
a lower limit on the price that can be legally charged by sellers of a good.
price elasticity of demand
a measure of the responsiveness of the quantity of a good demanded to changes in its price. In general, if there is a large responsiveness of quantity demanded, demand is referred to as being elastic; if there is a small responsiveness, demand is inelastic. PED = (Q2-Q1)/[(Q2+Q1)/2] / (P2-P1)/[(P2+P1)/2] or % change in quantity demanded / % change in price
the amount of money received by firms when they sell a good or service, and is equal to the price of the good times the quantity of the good sold. TR = P x Q
cross elasticity of demand
a measure of the responsiveness of the demand for one good to a change in the price of another good. It tells whether demand increases or decreases and by how much does demand shift. CED = % change in quantity demanded of good 1 / % change in price of good 2
income elasticity of demand
a measure of the responsiveness of demand to changes in income. It tells us the direction of change of demand, given a change in income, and on the magnitude of the change (by how much the demand curve will shift). YED = % change in quantity demanded / % change in income
dominated by agriculture, and also including fishing, forestry, and all extractive activities (such as mining)
including commerce, finance, transportation and all other services (education, health care, and so on), also referred to as the services sector
price elasticity of supply
a measure of the responsiveness of the quantity of a good supplied to changes in its price. In general, if there is a large responsiveness of quantity supplied, supply is referred to as being elastic; if there is a small responsiveness, supply is inelastic. PES = % change in quantity of good supplied / % change in price of good
refers to the failure of the market to allocate resources efficiently, or to provide the quantity and combination of goods and services mostly wanted by society (the optimum). Market failure results in allocative inefficiency, where too much or too little of goods or services are produced and consumed from the point of view of what is socially most desirable.
occurs when the actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions, and whose interest are not taken into consideration
an externality in which the side-effects on third parties involve benefits; also known as spillover benefit
an externality in which the side-effects on third-parties involve costs or other negative side-effects; also known as spillover cost
permits to pollute that are issued to firms by a government or an international body, and that can be traded (bought and sold) in a market
goods that are held to be desirable for consumers, but which are underprovided by the market
goods that are considered undesirable for consumers and are overprovided by the market
a good that is non-rivalrous (its consumption by one person does not reduce consumption by someone else) and it is non-excludable (it is not possible to exclude someone from using this good)
Latin term meaning "everything else being equal"
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