IB [HL] Economics- Microeconomics:
Revision resource for Microeconomics for Economics course. GOOD LUCK!
Terms in this set (142)
Ad valorem tax
Imposes a % tax on the value.
Resources are distributed so that consumers and producers get the maximum possible benefit, which means no one can be made better off without making someone else worse off.
A market failure in which one party in a transaction processes more knowledge of the transacted product than the other party. e.g second-hand cars, works of art.
An output that is produced on average, by each unit of the variable production factor.
The revenue a firm receives per unit of sales.
Average total costs
Costs per unit of output.
Barriers to entry
Ways of preventing entry to a company to the industry.
A process in which a company develops a name, term,sign, symol, design or any other feature that allows consumers to identify the goods and serviced of a business & to differentiate them from those of competitors.
The price at which a firm is able to make normal profit in the long run.
Cap & trading schemes
Government mandated, market-based approach to controlling pollution by providing economics incentives by achieving reduction in the emission of pollutants.
A tax on fossil fuels intended to reduce the mission of carbon dioxide.
A group of firms that collude by agreeing to restrict output to increase prices and profits
Latin expression- 'when all else remains equal' [constant]
Collaboration of firms to charge the same price.
Resources that everyone has access to so it is very hard to exclude people from using them.
Total welfare created in the economy;the sum of consumer & producer surplus.
Good that is consumed along with another good.
A measure of the percentage market share in any industry held by the largest firm within the industry.
Constant return to scale
The situation in which an average cost is constant when production is constant.
The extra satisfaction (or utility) gained by consumers from paying a price that is lower than that which they are prepared to pay.
Corporate social responsibility
The responsibility that a business has towards all stakeholder in which it follows a set of ethical guidelines on how the company should construct its business.
Cross price elasticity of demand
A measure for the effect of a change in price of one product has on the demand for a certain product.
Decreasing returns to scale
The situation in which an average cost is increasing when production is increased.
A curve showing how the demand for a commodity or service varies with changes in tis price.
Goods of which the consumption has negative consequences on society.
Products don't have perfect substitutes.
Diseconomies of scale
A situation that occurs when the long term average costs of production increase as the scale of operations increases beyond a certain level.
The opportunity cost of all resources employed by the firm (including entrepreneurship).
Economics cost/Abnormal profit
A situation in which total revenues exceed total cost.
Economies of scale
A situation that works when an output increases due to ability to sell to a larger market , reducing the costs per unit of output.
The percentage change in demand is more than the percentage change in price.
The percentage change in supply is larger than the percentage change in price.
The market price where the quantity of goods supplied is equal to the quantity of goods demanded.
The quantity of goods that will be demanded at the point of market equilibrium.
A situation in which the quantity of a good or service demanded is higher than the quantity supplied.
A situation in which the quantity of a good or service supplied is higher than the quantity supplied.
Excludable characteristic of a good
People can be excluded from the use of the good.
The opportunity cost of the money spent on revenues not currently owned by a company.
A situation in which production or consumption of a good has an effect of a third party for which the latter doesn't pay or doesn't get compensated.
Factors of production
All the inputs that are used in the production of final goods & serviced. Include land, labour, capital & enterprise.
First degree price discrimination
Charging consumer the maximum price that they are willing to pay.
Costs that always remain constant & do not change in the short run.
When firms secretly agree on a price and all firms participating in the collusion know that they are participating & know the negotiated prices.
A market failure that occurs when people take advantage of being able to use [public] goods without paying for it.
Products that are exactly the same.
The opportunity cost of the usage of resources currently owned by the company.
Intensive function of a price
A higher price is an incentive for producers to produce more to increase profit.
Income elasticity of demand
Used to measure the effect that a change in income of consumers has on the demand for a certain product.
The % change in demand for a good is larger than the % change in income.
% change in demand for a good is smaller than the % change in income.
Increasing returns to scale
The situation in which an average cost is decreasing when production is increased.
Taxes imposed on certain goods to discourage the consumption of goods that can create externalities (demerit good)
Taxes levied on the sale of goods.
A state in which some production factors cannot be divided into smaller pieces.
% change in demand is less than the % change in price.
% change in supply is less than the % change in price.
Goods for which demand decreases when income increases.
Mutual dependence between two parties.
Law of demand
Economics law which states that when price goes up, ceteris paribus, quantity demanded goes down.
Law of diminishing returns
A phenomenon in which the more of the variable factor is added, there is a point beyond which total product only rises at a diminishing rate.
Law of supply
Economics law that states that higher prices will, ceteris paribus, increase quantity supplied.
The governments attempts to prevent entry into the market by law.
Time period in which all factors of production are variable but the state of technology is fixed. All planning takes place in the long run.
A negative economic profit, when total cost exceeds total revenue.
A good for which demand increase more than proportionality as income rises.
Products that have been made (manufactured) from a raw material.
The amount of the increase in total cost when producing one more unit of output.
Marginal private benefits
Benefits the individual enjoys from the consumption of an extra unit of a good.
Marginal private costs
Costs of production that are taken into account in a firm's decision making process
An extra output that is produced by using one extra unit of the variable factor.
Extra revenue that a firm gains by selling one more product in a given time period.
Marginal social benefit
The benefit of consumption of one extra unit to society.
Marginal social cost
The cost of production of one extra unit to society.
A state where the supply is equal to the demand in the market.
Failure of the market to achieve allocative efficiency resulting in an over allocation or under allocation of resources.
Current price at which goods or services can be bought or sold.
A group of people who share one or more common characteristics, lumped together for marketing purposes.
Goods of which the consumption has positive consequences on society
A market structure in which there is a large number of firms that sell similar, but highly differentiated products. Barriers to entry & exit are absent.
A market characterized by a single seller who has a complete control of the entire supply of goods of a service in a certain area or marker. Significant barriers to entry & exit, there are no close substitutes to the good or the monopolist firm sells.
A market failure in which one party (the monopolist) controls a large share (25% more) of a market.
The process of transforming private assets into public asses by bringing them under the public ownership of a national government.
A situation in which there are only enough economies to support one firm.
Goods where consumption is essential to human survival.
Costs that one suffers from a third party (doesn't get compensated) as a result of economics transaction.
Negative externality of production
A negative externality caused by the production of goods.
Negative externality of consumption
A negative externality caused by the consumption of goods.
Non- excludable characteristic of good
People cannot be excluded from the use of the good
Rivalry between suppliers based on other aspects that price e.g quality of service, packaging, advertising etc.
The use of methods other than price that have the effect of limiting consumption or demand.
Non- rivalrous characteristic of a good
More people can use the good at the same time.
A good for which demand increases when demand increases.
A situation in where total revenue equals total cost.
A market structure in which there are a lot of producers that have no market power & produce & sell a homogenous product, barriers to entry/exit is absent, there is perfect information & perfect score mobility.
A feature of perfect information in which everyone knows everything.
Perfectly inelastic demand
% change in demand is infinite when price changes; when price increases demand will increase to infinity.
Perfectly elastic supply
% change in supply is infinite when price changes; price decreases supply will drop to zero, price increases supply will increase to infinity.
Perfectly inelastic demand
Demand doesn't change when price changes.
Perfectly inelastic supply
Supply doesn't change when price changes.
Perfect resource mobility
Resources can move from location to location at zero cost
Benefits that are enjoyed by a third-party (doesn't pay for them) as a result of an economics transaction.
Positive externalities of consumption
A positive externality caused by consumption activities, leading to a situation where marginal social beneﬁ ts are greater than marginal private beneﬁ ts (MSB > MPB); see also externality and positive externality.
Positive externality of production
A positive externality caused by production activities, leading to a situation where MSC > MPC.
A legal maximum on the price at which a good can be sold.
Rivalry between suppliers based solely on price, usually for commodious or identical items.
A measure by the government that forces producers to sell goods for a fixed price of for a price within a certain range.
the practice of charging different prices to different buyers for goods of like grade and quality, where the price difference is not justified by differences in cost.
Price elasticity of demand
A measure of how much the quantity demanded of a good responds to a change in the price of that good, computed as the percentage change in quantity demanded divided by the percentage change in price.
Price elasticity of supply
A measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price.
A price (set by the government) above the equilibrium price below which the price may not fall.
A firm that does not have to consider competitors when setting the prices of its products, has the power to influence the price on the market.
Characteristics of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change, prices stay the same over long periods of time.
An individual company that must accept prevailing prices in a market.
Materials in a raw or unprocessed state.
The excess of actual earnings that a producer makes from a given quantity of output, over and above the amount the producer would be prepared to accept for that output. Producer surplus is equal to producer profits.
Goods that one individual can consume without reducing its availability to another individual, and from which no one can be excluded.
Form of non-pricing rationing in the situation of a shortage in which the goods are distributes to the consumers who are willing to wait the longest in a que.
A state in which suppliers produce the product at the lowest possible unit cost.
Rivalrous characteristic of a good
Goods can't be used by more people at the same time.
A goal of firm in which the firm tries to perform satisfactory rather than to a maximum level.
Second degree price discrimination
Changing a different price for different quantities consumed.
A situation in which demand for a goof or service exceed the available supply.
Time-period in which at least one factor of production is fixed & the firm can't quickly change the quantity produced . All production takes place in the short run.
A point of operations where a company experiences no benefit for continuing operations or from shutting down temporarily; it is the combination of output and price where the company earns just enough revenue to cover its total variable costs.When the price drops below the shut down price, company will shut down it's operators.
Signalling functions of a price
A signal to producers that consumers want to by the good.
 Method of production where a business focuses on the production of a limited scope of products/services to gain higher productive efficiency.  Division of labour, specialization of cooperative labour in specific, circumscribed tasks & roles.
A tax that is defined as a fixed amount for each unit of a good or service sold.
An amount of money paid by the government to a firm, per unit of output.
A good that competes with another good for consumer purchases.
A curve that shows the relationship between the price of a product and the quantity of the product supplied.
When firms limit production and raise prices in a way that raises each others' profits, even though they have not made any formal agreement.
Division of a tax burden between buyers & sellers, tax burden on a specific group in the economy.
The sum of the fixed and variable costs for any given level of production.
 Amount of tax paid by a person, company or country in a specified period considered as a proportion of total income in that period.  Total welfare loss of society due to taxation.
Third-degree price discrimination
Charging different prices to different demographic market segments [depending on a particular market segment].
All the goods and services produced by a business during a given period of time with a given amount of input [using it's fixed + variable factors].
The total amount of money a firm receives by selling goods or services in a given time period.
Removing barriers to trade between different countries and encouraging free trade.
Underground parallel/black market
Involves buying/selling transactions that are unrecorded and are usually illegal/ without the knowledge of the government , participants avoid government price controls/taxes.
Unit elastic demand
% change in demand is = to the % change in price.
Unit elastic supply
% change in supply is = % change in price.
Costs that vary with the quantity of output produced.