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A IB Economics HL > Micro Definitions > Flashcards

Micro Definitions Flashcards

1
Q

free market economy

A

private ownership of FOP; market forces allocate resource

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2
Q

planned economy

A

state ownership of FOP; gov allocates resource

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3
Q

factors of production

A

resources used to produce g/s → land, labour, capital, enterprise

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4
Q

land

A

natural resource

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5
Q

primary sector

A

derived from land eg. agricultural products, metals, minerals

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6
Q

labor

A

human resource (physical+mental)；return is wage

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7
Q

human capital

A

the education/skills;
of labor

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8
Q

physical capital

A

man-made machinery, tools, infrastructure…

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9
Q

infrastructure

A

physical capital financed by gov that is essential for economic activities

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10
Q

entrepreneurship

A

the ability of individuals to organize the other FOP (land, labour, capital) + willingness to take risks → return is profit

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11
Q

market

A

a place for buyers and sellers to interact and carry out economic transaction

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12
Q

resource allocation

A

apportioning available FOP for particular production purposes

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13
Q

scarcity

A

limited economic resources relative to society’s unlimited needs and wants

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14
Q

utility

A

satisfaction derived from consuming a g/s

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15
Q

wealth

A

the total value of assets owned by a person, firm, or country minus what is owed to banks or other financial institutions

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16
Q

firm

A

productive units that use FOP to produce and sell g/s and earn profits

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17
Q

PPC

A

a model showing the MAX COMBINATION OF TWO g/s that can be produced by an economy in a given time period when all FOP are used EFFICIENTLY and tech is fixed

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18
Q

productive capacity

A

max possible output of an economy

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19
Q

opportunity cost

A

the next best alternative foregone when an economic choice is made

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20
Q

rational consumer choice

A
  • perfect information
  • weigh up all pros/cons
  • utility maximization
  • consistent taste
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21
Q

rules of thumb

A

mental shortcuts to make a quick, satisfactory, but not perfect decisions

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22
Q

anchoring

A

consumer make decisions based on anchor values that are pre-set in their minds

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23
Q

framing / choice architecture

A

choices are presented in a way designed to affect decision-making

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24
Q

consumer nudges

A

positive reinforcement and indirect suggestions; to influence consumer behavior

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25
Q

demand

A

the quantity of a g/s that consumers are WILLING＋ABLE to buy at DIFFERENT PRICES over a time period

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26
Q

quantity demanded

A

the quantity of a g/s that consumers are WILLING+ABLE to buy at a SPECIFIC PRICE over a time period

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27
Q

law of demand

A

QD increases as P falls; over a certain period of time; ceteris paribus

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28
Q

marginal utility

A

the additional satisfaction gained from consuming one more unit of a g/s

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29
Q

complements

A

goods that are jointly consumed eg. bread and butter

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30
Q

substitutes

A

goods that can be used IN PLACE OF EACH OTHER as they SATISFY THE SAME NEED eg. Coke and Pepsi

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31
Q

supply

A

the quantity of a g/s that producers are WILLING＋ABLE to sell at DIFFERENT PRICES over a time period

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32
Q

joint supply

A

goods that are produced together eg. designer bag and leather accessories

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33
Q

competitive supply

A

goods that use the same resources to produce → compete with each other for the use of the resources

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34
Q

market equilibrium

A

QS=QD, no shortage or surplus

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35
Q

price mechanism

A

the forces of D and S determine the prices of g/s

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36
Q

consumer/producer surplus

A

the DIFFERENCE between the price that consumers/producers are WILLING+ABLE to pay/sell and the MARKET PRICE→ the BENEFIT they receive from buying/selling at Pe

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37
Q

social surplus

A

PS+CS; maximized when MSB=MSC and AE is achieved

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38
Q

allocative efficiency

A

the SOCIALLY OPTIMUM OUTPUT where MSB = MSC；
p/c of the right amount such that the scarce resource is allocated in the best way for society

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39
Q

productive efficiency

A

COMPETITION forces firms to produce at MIN AC; Inefficient firms are forced out of the market cuz they can’t sell their output at Pe

40
Q

efficiency

A

making the best use of scarce resources

41
Q

welfare loss

A

loss of social surplus when there is market failure (where MSB≠MSC)

42
Q

PED

A

responsiveness of QD to a change in P PED = %△ in QD / %△ in P

43
Q

(price) elastic demand

A

PED>1； ∆P leads to more than proportionate ∆QD

44
Q

primary commodities

A

raw materials produced in the primary sector

45
Q

manufactured products

A

goods produced by workers with capital

46
Q

YED

A

responsiveness of D to a change in INCOME

47
Q

normal good

A

essentials; D increases as income increase

48
Q

luxury good

A

price elastic (PED>1) ＋income elastic (YED>1)

49
Q

inferior good

A

low quality goods; YED＜0; D decrease as income increase

50
Q

PES

A

responsiveness of QS to a change in PRICE

51
Q

direct tax

A

tax on income/profit/wealth; paid directly to gov

52
Q

indirect tax

A

tax on expenditure; levied on producers and passed to consumers in the form of higher price of products

53
Q

subsidy

A

money per unit of output paid by gov to firms; to encourage production and lower price to consumers.

54
Q

price ceiling

A

price set by gov BELOW market equilibrium price;to make a g/s more affordable to low-income

55
Q

price floor

A

price set by gov ABOVE market equilibrium price;to protect producer from low-price competition and increase production + income for producer

56
Q

market failure

A

when markets fail to achieve allocative efficiency → MSB≠MSC → DWL

57
Q

externalities

A

external costs/benefits to 3rd parties as a result of the p/c of a g/s

58
Q

MSB
MSC

A

the additional benefit/cost to society of producing/consuming an additional unit of a g/s; (private+external)

59
Q

merit good

A

benefit both consumer + society, create PE→ UNDER-p/c in a free market relative to social optimum as producers/consumers only consider PB and ignore EB

60
Q

demerit good

A

harm both consumer + society, create NE→ OVER-p/c in a free market relative to social optimum as producers/consumers only consider PC and ignore EC

61
Q

public good

A

non excludable - available for all to use, can’t charge market price

non-rivalrous - one’s use doesn’t reduce its availability for others

62
Q

free good

A

doesn’t use scarce resource → no oppo cost

63
Q

common pool resource

A

non-excludable - available for anyone to use, can’t charge market price
rivalrous - one’s use depletes availability for others

64
Q

tragedy of commons

A

CAR are rapidly depleted/degraded by private individuals for their self-interest to enjoy short-term PB and ignore EC

65
Q

sustainability

A

preserving the environment so that it can meet the needs of present generation without sacrificing the the needs of future generations

66
Q

pigouvian taxes

A

indirect tax to eliminate external cost of production/consumption

67
Q

carbon tax

A

tax per unit of carbon emission/content

68
Q

tradable permits

A

a cap on the max amount to pollute issued by gov; can be traded in a market

69
Q

collective self-governance

A

CAR users solve the problem of overuse by devising rules + monitor + penalty

70
Q

asymmetric information

A

market failure where buyers and sellers have unequal access to information (one party in an economic transaction has more or better info than the other)

71
Q

revenue

A

price x quantity sold

72
Q

marginal revenue

A

revenue gained from selling one additional unit of output

73
Q

average revenue

A

revenue per unit sold (AR = TR/Q = P)

74
Q

loss

A

TC > TR

75
Q

normal profit

A

minimum return for a firm to stay in business (when P=AR=AC)

76
Q

profit maximization

A

MR = MC

77
Q

short run

A

the period of time when at least one FOP is FIXED

78
Q

long run

A

the period of time when all FOP are VARIABLE

79
Q

EOS (economies of scale)

A

average cost falls as output increases

80
Q

perfect competition

A

no entry barrier → large number of small firms producing homogeneous products → no market power, price taker+ perfect information!

81
Q

competitive market

A

many firms; no firm has the ability to control the price

82
Q

homogeneous product

A

goods that are considered identical across firms in the eyes of consumers
eg. agricultural products like corn and wheat

83
Q

price taker

A

a firm that is unable to influence the price → forced to accept market price

84
Q

Average ProductMarginal Product

A

AP: output produced by each unit of FOP = TP/Q(FOP)MP: output produced by each ADDITIONAL unit of FOP = ∆TP/∆Q(FOP)

85
Q

monopoly

A

high entry barrier → dominating firm producing unique product (no substitute) → significant market power, price maker

86
Q

barriers to entry

A

anything that deters new firms entering a market
eg. patent, high start-up capital cost, EOS…

87
Q

market power

A

the ability of firms to raise and fix the price above market price (P>MC)

88
Q

abnormal profit

A

P ＞AC

89
Q

abuse of market power

A

when a firm acts to eliminate competitors or prevent new entry of firms into the market

90
Q

natural monopoly

A

extremely high fixed cost → more efficient for one firm to cover the D of the entire market while still experiencing EOS

91
Q

monopolistic competition

A

low entry barrier → many firms producing slightly differentiated products → some market power, price maker

92
Q

oligopoly

A

high entry barrier → a few large firms dominate the market → significant market power, price maker

93
Q

collusive oligopoly

A

dominating firms agree to fix price above Pm and/or engage in other anti-competitive behavior

94
Q

concentration ratio

A

the proportion of market sales accounted for by the largest firms → indicates market power

95
Q

cartel

A

formal agreement among dominating firms agree to fix price

96
Q

Actual Growth (PPC)

A

increase in efficiency; point shift from inside to on PPC curve

97
Q

Potential Growth (PPC)

A

increase in potential output due to increase in quantity/quality of FOP; PPC curve shift outwards

A IB Economics HL (6 decks)

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