IB Economics SL - Microeconomics

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Terms in this set (...)

ad valorem tax
An indirect tax where a given percentage is added to the price of a good or service.
allocative efficiency
Occurs where the marginal social cost of producing a good is equal to the marginal social benefit of the good to society. In different words, it occurs where the marginal cost of producing a good (including any external costs) is equal to the price that is charged to consumers (P = MC).
ceteris paribus
A latin expression meaning 'let all other things remain equal' used by economists to develop economic theories or models.
common access resources
Resources which have properties similar to public goods in that it is very difficult or impossible to prevent people from using or consuming the resource. Therefore, they are vulnerable to overuse and/or degradation.
complementary good
Goods used in combination with each other, e.g. digital cameras and memory cards. They have negative cross-price elasticity.
consumer surplus
The additional benefit or utility received by consumers by paying a price that is lower than they are willing to pay.
cross price elasticity of demand
A measure of the responsiveness of the quantity of one good demanded in response to a change in the price of a related good. XED = %D in Qd of Good A/%D in price of Good B
demerit goods
Products that are considered to be harmful for people that would be over-provided or over-consumed in a purely free market economy. Are generally considered to be products whose consumption creates negative externalities.
demand
The quantity of a product that consumers are willing and able to buy at a given price in a given time period.
demand schedule
A chart or table showing the quantity of a product demanded at each price. A demand schedule, or a demand function, is used to draw a demand curve.
excess demand
Occurs where the price of a good is lower than the equilibrium price, such that the quantity demanded is greater than the quantity supplied.
excess supply
Occurs where the price of a good is higher than the equilibrium price, such that the quantity supplied is greater than the quantity demanded.
homogeneous products
Completely identical products, as produced in perfect competition.
incentive function
Prices give producers the motivation either to increase or decrease the quantity they supply. A rising price gives producers the motive to increase the quantity supplied, as the higher price may allow them to earn higher revenues.
income elasticity of demand
A measure of the responsiveness of demand for a good to a change in consumers' income (= %D in QD/%D in Y)
indirect taxes
Taxes placed upon the expenditure on a good or service, e.g. value added tax, or goods and services tax.
inferior good
A good whose demand falls as income rises. It has negative income elasticity.
joint supply
Goods which are produced together, or where the production of one good involves the production of another product, e.g. meat and leather (a by-product).
law of demand
As the price of a product increases, the quantity demanded decreases, ceteris paribus.
law of supply
As the price of a product increases, the quantity supplied increases, ceteris paribus.
marginal private benefit
The extra benefit or utility to the consumer of consuming an additional unit of output.
marginal private cost
The extra (private) cost to the producer of producing an additional unit of output.
marginal social benefit
The extra benefit or utility to society of consuming an additional unit of output, including both the private benefit and the external benefits.
marginal social cost
The extra cost to society of producing an additional unit of output, including both the private cost and the external costs.
market
A place where buyers and sellers of a product come together to make an exchange, or a trade.
market equilibrium
The point where the quantity of a product demanded is equal to the quantity of a product supplied. This creates the market clearing price and quantity where there is no excess demand or excess supply.
market failure
Occurs when the production of a good does not take place at the socially efficient level of output (allocative efficiency where MSC = MSB).
merit good
Products that are considered to be beneficial for people that would be under-provided or under-consumed in a purely free market economy. Generally considered to be products whose consumption create positive externalities.
microeconomics
The study of the behaviour (supply and demand) of individual markets.
natural monopoly
A situation where there are only enough economies of scale available in a market to support one firm, such that it is natural that the industry be dominated by one firm only.
negative consumption externality
The external costs to a third party that occur when a product is consumed.
negative production externality
The external costs to third party that occur when a product is produced.
normal good
A good whose demand rises as income rises. It has positive income elasticity.
positive consumption externality
The external benefits to a third party that occur when a product is consumed.
positive production externality
The external benefits to a third party that occur when a product is produced.
price ceiling
A maximum price set by the government or other authority above which the product may not be sold in order to support the consumers of the product.
price elasticity of demand
A measure of the responsiveness of the quantity of a good demanded to a change in its price ( = %D in Qd/%D in price).
price elasticity of supply
A measure of the responsiveness of the quantity of a good supplied to a change in its price ( = %Din Qs/%D in price).
price floor
A minimum price set by the government or other authority below which the product may not be sold in order to support the producers of a product.
producer surplus
The additional benefit received by producers by receiving a price that is higher than the price they were willing to receive.
public good
A product which is non-rivalrous and non-excludable and so would not be provided at all in a purely free market economy.
resource allocation
A primary focus of the study of economics is to examine the way that scarce factors of production (land, labour and capital) are used to meet unlimited demand.
signalling function
A rising price gives a prompt to producers that they should increase their quantity supplied and alerts to consumers that they should decrease the quantity demanded, and vice versa.
specific taxes
An indirect tax where a fixed amount is added to the price of a good or service.
subsidy
The amount of money given to producers of a product by the government. It increases the supply of the good by effectively lowering the firms' costs of production.
substitute goods
Goods which can be used in place of each other, e.g. Adidas running shoes and Nike running shoes. They have positive cross-price elasticity.
supply
The amount of a good or service that producers are willing and able to produce at a given price in a given time period.
sustainability
In economic terms, the development that meets the needs of present generations without compromising the ability of future generations to meet their needs.