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IB Economics: Sec 1
Key words of Section 1: Microeconomics
| Term | Definition |
|---|---|
| Market | A process or an institution through which potential buyers and sellers of a product interact |
| Demand | The relationship between various possible prices and the corresponding quantities that an individual or the market is willing and able to buy per period of time |
| Normal Goods | Goods for which demand increases following an increase in consumers' income |
| Inferior Goods | Goods for which demand decreases following an increase in consumers' income |
| Substitute Goods | Two goods that can satisfy the same need for a consumer which are thus in competitive consumption and for which XED is positive. |
| Complementary Goods | Goods that are consumed jointly |
| Consumer Surplus | The difference between how much a consumer is willing and able to pay at the most for some amount of a good and what he or she actually ends up paying |
| Producer Surplus | The difference between what a firm earns and the minimum it requires to offer a given amount of a good |
| Allocative Efficiency | Exists when "just the right amount" from society's point of view has been produced. MSB = MSC |
| Price Elasticity of Demand (PED) | The responsiveness of demand to a change in price |
| Price Elasticity of Supply (PES) | The responsiveness of supply to a change in price |
| Cross-price Elasticity of Demand | The responsiveness of the demand for a good to a change in the price of another good |
| Income Elasticity of Demand (YED) | The responsiveness of demand to a change in income |
| Indirect Taxation | A tax on goods or on expenditure on a "per unit" basis or as a percentage of the price |
| Specific Tax | An indirect tax that is set as a fixed amount per unit |
| Ad Valorem Tax | An indirect tax expressed as a percentage of the price of a product |
| Subsidy | A payment made by the government to firms aiming at lowering costs and price and thus raising production and consumption of the product as well as firms' revenues |
| Price Ceiling | A maximum price set by the government which is below the free market price |
| Price Floor | A minimum price set by the government which is above the free market price |
| Market failure | When market forces alone fail to allocate scarce resources efficiently, over or under production or consumption of a good. |
| Externalities | When an economic activity creates benefits or imposes costs for third parties for which these do not pay or get compensated for |
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