IB Econ Vocab for Midterm
Terms in this set (98)
the limited nature of resources relative to people's unlimited wants.
is the next best alternative foregone when an economic decision is made.
Command economy ("planned economy")
an economy in which resources are owned an allocated by a central power.
an economy in which resources are allocated through the interactions of buyers and sellers (demand and supply).
The Invisible Hand of the market
a metaphor for how, in the absence of a central planner, selfish people can lead to an efficient allocation of resources.
the body of economics based on positive statements, which are about things that are, were or will be.
the body of economics that deals with what should be rather than what is.
the factor of production that provides a stream of future benefits by increasing the amount of output that can be produced in the future.
Tools, machinery, buildings, etc. that are used in the production of other goods or services.
The skills (education & training) and good health that makes labor more productive.
Land and natural resources used in the production of goods and services.
A market is a place where buyers and sellers come together to engage in exchanges with one another.
is the market for a good with large numbers of buyers and sellers, where the single seller has very little or no market power.
the amount of a good/service that consumers are willing and able to buy at different possible prices during a particular time period, ceteris paribus.
the various quantities of a good/service that firms are willing and able to produce and sell at different possible prices during a particular time period, ceteris paribus.
The price determined in a market when quantity demanded is equal to quantity supplied, and there is no tendency for the price to change.
The ability of price to adjust until the quantity demanded of a good is equal to the quantity supplied.
The quantity that is bought and sold when a market when quantity demanded is equal to quantity supplied.
Two or more goods that satisfy a similar need, so that one good can be used in place of another. That is to say that an increase in the price of one would lead to a decrease in the quantity demanded of the other.
Two or more goods that tendto be used together. That is to say that an increase in the price of one will lead to a decrease in the quantity demanded of the other.
Factors of production
Resources necessary for the production of goods and services.
A situation in which the quantity demanded of a good exceeds the quantity supplied.
A situation in which the quantity supplied of a good or service exceeds the quantity demanded.
Whatever must be given upin order to undertakeany activity or economic exchange.
the difference between the highest prices consumers are willing to pay for a good and the price actually paid.
the difference between the price received by firms for selling their good and the lowest price they are willing to accept to produce the good.
Price elasticity of demand
A measure of the responsiveness of the quantity of a good demanded to changes in its price.
Price elasticity of supply
A measure of the responsiveness of the quantity supplied of a good to changes in its price.
Cross Elasticity of demand
A measure of the responsiveness of the demand for one good to a change in the price of another good.
Income Elasticity of demand
A measure of the responsiveness of the quantity demanded of a good to a change in the income of the consumer.
A good for which demand increases as income increases.
A good for which demand decreases as income increases.
A tax is a charge, placed on a individual or firm, that is payable to the government under punishment of law.
A tax levied on the consumers of certain goods and services through the suppliers.
A set amount charged per unit of the product sold.
Ad valorem tax
A tax calculated as a fixed percentage of the price of the good or service.
money given to a firm by the government in order to increase supply (output/production) and reduce the price of a good or service.
The setting of minimum or maximum prices by the government so that prices are unable to adjust to their equilibrium level determined by demand and supply.
Price ceiling (maximum price)
A maximum price set by the government for a particular good, meaning that the price that can be legally charged by the sellers of the good cannot be higher than the legal maximum price.
Price floor (minimum price)
A minimum price set bythe government for a particular good, meaning that the price that can be legally charged by the sellers of the good cannot be lower than the legal minimum price.
The organizing and risk-taking factor of production. They use their money and the money of other investors to buy the factors of production, and produce goods and services.
the amount by which quantity demanded is greater than quantity supplied.
the amount by which quantity supplied is greater than quantity demanded.
A situation in which the free market fails to allocate resources efficiently.
An allocation of resources that results in producing the quantity of goods and services mostly preferred by consumers (MC= MB).
Marginal private benefit
The extra benefit received by consumers when they consume one more unit of a good.
Marginal private cost
The extra costs to producers of producing one more unit of a good.
Marginal social benefit
The extra benefits to society of consuming one more unit of a good.
Marginal social cost
The extra costs to society of producing one more unit of a good.
Costs/benefits borne by a third party as a result of the production or consumption of a good/service.
Negative externality of consumption
Harmful side effects to third parties caused by the consumption of a good or service.
Negative externality of production
They are the costs suffered by a third party when a good or service is produced.
Positive externality of production
Positive side effects to third parties caused by the production of certain goods and services.
Positive externality of consumption
Positive side effects to third parties caused by the consumption of certain goods and services.
The loss of a portion of social surplus that arises when marginal social benefits are not equal to marginal social costs.
Merit goods are goods or services considered to be beneficial for people (society) that would be under-provided by the market and so under-consumed.
Goods that are considered to be 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 non-excludable (it is not possible to exclude someone from using the good).
Common access resources
Resources that are non-excludable but rivalrous.
maintaining the ability of the environment and the economy to continue to produce and satisfy needs and wants into the future.
a time period during which at least one input is fixed and cannot be changed by the firm.
A time period in which all inputs can be varied; there are no fixed inputs.
The total quantity of output produced by a firm.
The total quantityof output of a firm per unit of variable input (such as labor).
The additional output that results from one additional unit of a variable input.
Law of diminishing returns
states that as more and more of a variable resource (typically labor) is added to fixed resources (capital and land), beyond a certain point the productivity of additional units of the variable resource declines.
costs of production involving sacrificed income arising from the use of self-owned resources by a firm.
costs of production that involve a money payment by a firm toan outsider in order to acquire a factor of production that is not owned by the firm.
the sum of explicit costs and implicit costs.
costs that do not change as output increases or decreases.
costs that change as output increases or decreases.
The sum of the fixed cost and the variable cost.
Costs per unit of output, calculated by dividing total cost by the number of units of output produced.
The additional cost of producing one more unit of output.
Economies of scale
the cost-reducing advantages that allow a firm to produce at ATC as it expands its production in the long run, adding new labor, land and capital.
The amount of money received by firms when they sell a good or service.
Revenue per unit of output sold, calculated by dividing total revenue by the number of units of output produced.
The additional revenue arising from the sale of an additional unit of output.
Economic profit ("abnormal profit")
are abnormal profits that occur when a firm earns revenues in excess of all of its costs, both explicit and implicit, including a normal profit for the entrepreneur.
Minimum profit necessary to attract and retain sellers in a perfect competition. Equals opportunity cost.
Barriers to entry
Anything that can prevent a firm from entering an industry and beginning production, as a result limiting the degree of competition in the industry.
Perfect competition (4 characteristics)
The market structure in which there is a very large number of firms, selling identical products to one another, in which there are no barriers to entry or exit, and in which individual firms have no control over the market price.
the price at which a firm that is making losses will stop producing in the short run.
the price at which a firm makes the normal profit (where the firm breaks even).
This is a situation where a firm produces at the lowest possible cost (where MC equals ATC).
Monopoly (3 characteristics)
a market where one firm dominates the market for a good that has no substitutes and where significant barriers to entry exist.
a market where the lowest costs can be achieved when only one firm sells to the market.
Monopolistic competition (3 characteristics)
a market in which there are many firms producing differentiated products and there are no barriers to entry or exit.
a situation where when each firm in an industry tries to makeits product different from those of its competitors (to gain some monopoly power).
a situation where firms compete with each other on the basis of methods other than price (such as product differentiation, advertising and branding).
a market where a few sellers dominate the marketfor an identical or differentiated good, and where there are significant barriers to entry.
A type of oligopoly where firms do not make agreements among themselves (i.e. do not collude) in order to fix prices or collaborate in some way.
an agreement, whether formal or informal, between competitive parties to limit competition and raise prices.
cooperation that is implicit or understood between cooperating oligopolistic firms, without a formal agreement, with the objectives to coordinate prices, avoid competitive price-cutting, limit competition, reduce uncertainties and increase profits.
a group of competitors that successfully limit competition and keep prices above a competitive norm.
a situation in which a firm charges different prices to different consumers for the same good/service.
This is a goal of firms to achieve satisfactory results, rather than pursue a single maximizing objective, such as to maximize profits or revenues; This is based on the argument that large, modern firms have numerous objectives that may partly overlap or conflict, thus forcing them to compromise and reconcile conflicts, rather than pursue optimal results
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