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IB Economics > Micro Definitions > Flashcards

Flashcards in Micro Definitions Deck (37)
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1

Market

Any place, physical or virtual, where the buyers and sellers of goods and services meet

2

Competitive Market

Market for a good with large numbers of buys and sellers, where the single seller has very little or no market power

3

Demand

The quantity of a good or service that consumers are willing and able to buy at a given price during a specific time period, ceteris paribus

4

Law of Demand

As the price of a good increases, the quantity demanded of the good decreases, ceteris paribus and vice versa

5

Marginal benefit

The additional utility or satisfaction derived by an increase or decrease in the amount of a good or service consumed

6

Determinants of demand

Price: change in quantity demanded
Non-price variables: change in demand/shift of curve
- Income- normal and inferior goods
- Price of related goods
- Taste and preferences
- Expectations of future prices and income

7

Substitute goods

Goods with similar characteristics and demand for it will increase when the price of another good increases and vice versa.
(Close and remote substitutes)

8

Complementary goods

Goods which are consumed together and are typically consumed together, so the demand for one is decreased by the price increase of the other

9

Excess supply

Where the quantity supplied exceeds the quantity demanded, producing a surplus. The price is above the equilibrium price

10

Excess demand

Where the quantity demanded exceeds the quantity supplied, causing a shortage. The price is below the equilibrium price

11

Resource allocation

The manner by which society manages and rations its resources

12

Allocative efficiency

The optimal combination of goods from a society's point of view- no one can be better off without making someone else worse off (pareto optimality)
Where marginal benefit = marginal cost

13

Productive efficiency

Producing goods by using fewest possible resources/lowest possible cost

14

Consumer surplus

The difference between the highest price consumers are willing and able to pay for goods, and the actual price they end up paying

15

Producer surplus

The difference between the lowest price producers are willing and able to sell the good, and the actual price they end up receiving for it.

16

Marginal social benefit

The extra benefit or utility derived from the use/consumption of a good- including both private and external benefit

17

Marginal private benefit

The benefits enjoyed by the individual consumer for a particular good

18

Marginal social cost

The extra cost to society of producing an additional unit of output, including both the private cost and external costs.

19

Marginal private cost

The change in producer's total cost from selling an additional unit of output

20

Price elasticity of demand

Measure of the responsiveness to the quantity demanded of a good or service to changes in its own price
PED > 1: elastic
PED = 1: unitary elastic
01: inelastic
PED= 0: perfectly inelastic
PED= infinity: perfectly elastic

21

Primary Commodities

Goods that come directly from natural resources or 'land' - unprocessed raw materials

22

Manufactured goods

Man-made goods that have been produced from raw materials- processed through a production process

23

Indirect Tax

A tax imposed upon expenditure and is added to the selling price of the good

24

Subsidy

A grant paid by the government to support a firm - financial support

25

Market failure

Any situation where the allocation of resources by a free market is not efficient - failure to produce at a point of maximal community surplus

26

Price ceiling

A maximum legally allowable price for a good set by the government

27

Price floor

A minimum legally allowable price for a good set by the government

28

Externality

External costs or benefits to a third party when a good or service is produced or consumed

29

Merit goods

Goods/Services considered to be beneficial for people that would be under-provided by the market and so under-consumed (MSB>MSC)

30

Public goods

Goods/Services which would not be provided if left to the market. They are non-rivalry and non-excludible - typically provided by the government