MICROECONOMICS Flashcards
all vocab from ib syllabus
Absolute Advantage
A country’s ability to produce more of a good or service using the same resources compared to another country.
Adverse Selection
A situation in which information asymmetry leads to the market favoring lower-quality goods or services.
Allocative Efficiency
When resources in an economy are allocated in a way that maximizes total benefit—where consumer and producer surplus are at their highest.
Allocative Inefficiency
A condition where resources are not used in the most valuable way, resulting in a loss of potential welfare for society.
Anchoring
A cognitive bias in which individuals rely too heavily on an initial piece of information (the ‘anchor’) when making decisions.
Anti-Monopoly Regulation
Policies designed to prevent monopolistic market power and promote competitive markets.
Asymmetric Information
A situation where one party in an economic transaction has more or better information than the other, often leading to suboptimal market outcomes.
Behavioural Economics
The study of how psychological, social, and emotional factors affect economic decisions of individuals and institutions.
Bounded Rationality
The concept that individuals make decisions with limited cognitive resources and information, rather than perfectly rational choices.
Bounded Self-Control
The idea that individuals may fail to act in their long-term best interest due to limited self-control, leading to choices that are less than optimal.
Bounded Selfishness
The notion that people are not entirely self-interested; they may consider fairness and social norms when making decisions.
Capital
The tools, equipment, machinery, and factories used in the production of goods and services.
Ceteris Paribus
A Latin phrase meaning ‘all other things being equal,’ used to isolate the effect of one variable in economic analysis.
Choice Architecture
The design of different ways in which choices can be presented to consumers, influencing their decision-making process.
Coase Theorem
A principle stating that if property rights are well-defined and transaction costs are low, private negotiations will lead to an efficient resolution of externalities.
Collusive Oligopoly
A market structure where a small number of firms collude—explicitly or tacitly—to reduce competition and increase profits.
Common Access Resources
Resources that are available to all but are prone to overuse or depletion because no one owns them (e.g., fisheries, public grazing lands).
Comparative Advantage
The ability of a producer to create a good or service at a lower opportunity cost than another producer, leading to gains from trade.
Competitive Supply
The amount of a good that all firms in a competitive market are willing to produce and sell at various prices.
Complements
Goods that are used together, so that an increase in the demand for one leads to an increase in the demand for the other (e.g., coffee and sugar).
Concentration Ratios
Measures that indicate the market share of the largest firms in an industry, used to assess market competitiveness.
Consumer Confidence
A measure of the overall optimism of consumers regarding their financial situation and the state of the economy, which can affect spending behavior.
Consumer Nudges
Subtle policy shifts or environmental modifications that steer consumers toward decisions that improve their welfare without eliminating choice.
Consumer Surplus
The difference between what consumers are willing to pay for a good and what they actually pay, representing the net benefit to consumers.
Corporate Social Responsibility
The practice where companies consider the social and environmental impacts of their operations and act in ways that benefit society as well as shareholders.
Default Choices
Pre-set options that individuals receive if they do not make an active choice, often influencing behavior due to inertia or perceived endorsement.
Demand
The quantity of a good or service that consumers are willing and able to purchase at various prices over a given period.
Demand Curve
A graphical representation that shows the relationship between the price of a good and the quantity demanded.
Demerit Goods
Goods that are considered harmful or undesirable, often overconsumed if left to market forces without regulation (e.g., tobacco, alcohol).
Deregulation
The removal or reduction of government rules and restrictions in an industry to encourage competition and efficiency.
Economies of Scale
Cost advantages that arise when a firm increases production, leading to a lower cost per unit of output.
Economics
The study of how societies allocate scarce resources to produce valuable commodities and distribute them among different people.
Efficiency
A measure of how well resources are used to achieve maximum output with minimal waste.
Elasticity
A concept that measures the responsiveness of quantity demanded or supplied to changes in price or other factors.
Elasticity of Demand for Exports
The responsiveness of the quantity demanded for a country’s exports to changes in export prices.
Elasticity of Demand for Imports
The responsiveness of the quantity demanded for imports to changes in import prices.
Entrepreneurship
The process of designing, launching, and running a new business, often characterized by risk-taking and innovation.
Equity
The fairness or justice in the way economic benefits and burdens are distributed among society’s members.
Excess Demand
A market condition where the quantity demanded exceeds the quantity supplied at a given price, often leading to upward pressure on prices.
Excess Supply
A situation where the quantity supplied exceeds the quantity demanded at a given price, often leading to downward pressure on prices.
Externalities
Side effects or spillover effects from an economic activity that affect third parties who did not choose to incur that cost or benefit.
Fairtrade
A trading partnership aiming to provide better trading conditions and promote sustainability for producers in developing countries.
Factors of Production
The inputs used to produce goods and services, typically including land, labor, capital, and entrepreneurship.
Firms
Organizations or businesses that produce goods or services for sale in the market.
Framing
The way in which information is presented can significantly affect decision-making and perceptions.
Free Goods
Goods that are abundant and not scarce, meaning they are available without any opportunity cost.
Free Market Economy
An economic system in which prices for goods and services are determined by open competition in a free market without government intervention.
Free Rider Problem
A situation where individuals benefit from a resource or service without paying for it, leading to potential under-provision of that good.
Households
The basic economic units in microeconomics representing consumers that demand goods and services.
Imperfect Competition
A market structure where firms have some control over pricing due to product differentiation, barriers to entry, or other factors.
Imperfect Information
A situation in which all parties in a transaction do not have complete or accurate information, potentially leading to inefficient outcomes.
Incentive Effect
The change in behavior that results from the presence of a reward or penalty, influencing decision-making in economic contexts.
Income
The monetary earnings of individuals or households from labor, investments, or other sources.
Income Elasticity of Demand (YED)
A measure of how much the quantity demanded of a good responds to a change in consumer income.
Indirect Taxes
Taxes levied on goods and services rather than directly on income or profits, such as sales taxes or value-added taxes (VAT).
Inferior Goods
Goods for which demand decreases as consumer income rises, as consumers switch to higher-quality substitutes.
Informal Market
Economic activities that occur outside of government regulation, often without formal contracts or record-keeping.
Joint Supply
A situation where the production of one good automatically results in the production of another good.
Labour
The human effort, both physical and mental, used in the production of goods and services.
Labour Union
An organization that represents workers, negotiating on their behalf with employers to improve wages, benefits, and working conditions.
Laissez Faire
An economic philosophy advocating minimal government intervention in the market, allowing supply and demand to determine outcomes.
Law of Demand
A principle stating that, ceteris paribus, as the price of a good falls, the quantity demanded will increase.
Law of Supply
A principle stating that, ceteris paribus, as the price of a good rises, the quantity supplied will also increase.
Mandated Choices
Pre-determined options set by policy or default settings that influence consumer decision-making.
Manufactured Goods
Products that are produced through industrial processes, often involving the transformation of raw materials.
Marginal Costs
The additional cost incurred by producing one extra unit of a good or service.
Marginal Private Benefit (MPB)
The additional benefit that a consumer receives from consuming one more unit of a good.
Marginal Private Cost (MPC)
The additional cost that a producer incurs from producing one extra unit of a good.
Marginal Social Benefit (MSB)
The total benefit to society from the consumption of one additional unit of a good, including external benefits.
Marginal Social Cost (MSC)
The total cost to society of producing one extra unit of a good, including any external costs.
Marginal Utility
The additional satisfaction or benefit that a consumer derives from consuming one more unit of a good or service.
Market
A structure or system where buyers and sellers interact to exchange goods and services.
Market Demand
The total quantity of a good or service demanded by all consumers in a market at various price levels.
Market Equilibrium
The point at which the quantity demanded equals the quantity supplied, resulting in a stable market price.
Market Failure
A situation in which the market does not allocate resources efficiently on its own, often due to externalities, public goods, or imperfect information.
Market Mechanism
The process by which supply and demand interact to determine the prices and quantities of goods and services in a market.
Market Power
The ability of a firm to influence the price of a product or control market conditions due to lack of competition.
Market Supply
The total quantity of a good or service that all producers in a market are willing to supply at various prices.
Merit Goods
Goods that are socially desirable and often under-consumed if left to market forces, such as education and healthcare.
Microeconomics
The branch of economics that focuses on individual markets, consumer behavior, and firm production decisions.
Necessity Goods
Goods that are essential for everyday living, typically with inelastic demand even when prices rise.
Negative Externalities of Consumption
Harmful side effects or spillover costs imposed on third parties due to the consumption of a good or service.
Negative Externalities of Production
Harmful side effects or spillover costs imposed on third parties resulting from the production process.
Non-Collusive Oligopoly
A market structure in which a few firms dominate without explicitly cooperating or colluding on prices or output.
Non-Excludable
A characteristic of a good where it is difficult or impossible to prevent people from consuming it, even if they do not pay for it.
Normal Goods
Goods for which demand increases as consumer income rises, in contrast to inferior goods.
Normative Economics
The study of economics that involves value judgments and opinions about what the economy should be like or what particular policy actions should be recommended.
Nudge Theory
A concept in behavioral economics that suggests small interventions in the choice environment can significantly influence individual behavior.
Oligopoly
A market structure characterized by a small number of firms, each with significant market power, often leading to strategic interactions.
Opportunity Cost
The cost of forgoing the next best alternative when making a decision; a key concept in economic trade-offs.
Perfect Competition
A market structure where many small firms compete against each other, all selling homogenous products with no barriers to entry.
Perfect Information
A situation where all participants in the market have complete and accurate information about prices, products, and market conditions.
Perfectly Elastic Demand
A demand curve that is horizontal, indicating that consumers will only purchase at one specific price and any price increase leads to zero quantity demanded.
Perfectly Elastic Supply
A supply curve that is horizontal, meaning producers are willing to supply any quantity at one fixed price.
Perfectly Inelastic Demand
A demand curve that is vertical, indicating that the quantity demanded does not change regardless of price changes.
Perfectly Inelastic Supply
A supply curve that is vertical, indicating that the quantity supplied remains fixed regardless of price changes.
Pigouvian Taxes
Taxes imposed on activities that generate negative externalities, intended to correct the market outcome by reflecting the true social cost.
Positive Discrimination
Measures aimed at favoring groups that have been historically disadvantaged to promote greater equality in the market.
Positive Externalities of Consumption
Benefits received by third parties from the consumption of a good, which are not reflected in the market price.
Positive Externalities of Production
Benefits to third parties resulting from the production of a good that are not reflected in the market price.
Price Ceiling (Maximum Price)
A government-imposed limit on how high a price can be charged for a product, intended to protect consumers from excessively high prices.
Price Controls
Government regulations that set either maximum (ceilings) or minimum (floors) prices for goods and services.
Price Elasticity of Demand (PED)
A measure of the responsiveness of the quantity demanded of a good to a change in its price.
Price Elasticity of Supply (PES)
A measure of the responsiveness of the quantity supplied of a good to a change in its price.
Price Expectations
Consumers’ and producers’ anticipations about future prices, which can influence current demand and supply decisions.
Price Floor (Minimum Price)
A government-imposed limit on how low a price can be charged for a product, intended to protect producers’ incomes.
Price Mechanism
The process by which the forces of supply and demand interact to determine the prices and quantities of goods in the market.
Privatisation
The transfer of ownership and management of enterprises from the public sector to the private sector.
Producer Surplus
The difference between the amount a producer is paid for a good and the minimum amount they are willing to accept.
Production Possibility Curve (PPC)
A graphical representation showing the maximum feasible output combinations of two goods that can be produced with available resources.
Productive Capacity
The maximum output that can be produced by an economy, firm, or production unit given current resources and technology.
Profit Maximisation
The process by which firms determine the price and output level that yield the highest possible profit.
Property Rights
The legal rights to use, transfer, and manage resources or property, which are essential for market transactions.
Public/Private Partnerships
Collaborative arrangements between the government and private sector companies to finance, build, or manage projects or services.
Quantity Demanded
The specific amount of a good or service that consumers are willing and able to purchase at a given price.
Quantity Supplied
The specific amount of a good or service that producers are willing and able to sell at a given price.
Quasi-Public Goods
Goods that share characteristics of both public and private goods, typically provided by the market with some government intervention.
What are Public/Private Partnerships?
Collaborative arrangements between the government and private sector companies to finance, build, or manage projects or services.
What is Quantity Demanded?
The specific amount of a good or service that consumers are willing and able to purchase at a given price.
What is Quantity Supplied?
The specific amount of a good or service that producers are willing and able to sell at a given price.
What are Quasi-Public Goods?
Goods that share characteristics of both public and private goods, typically provided by the market with some government intervention.
What is a Quota?
A government-imposed limit on the quantity of a good that can be produced or imported over a specific period.
What is Rationing?
The controlled distribution of scarce resources or goods, often implemented by governments during shortages.
What are Restricted Choices?
Limitations imposed on consumers that reduce the number of alternatives available in decision-making scenarios.
What are Rules of Thumb?
Simple, general principles derived from experience that guide decision-making, though they may not be optimal.
What is Satisficing?
Choosing an option that meets a minimum set of criteria rather than seeking the absolute optimal solution.
What is Scarcity?
The fundamental economic problem of having limited resources to meet unlimited wants and needs.
What is Screening?
The process by which one party gathers information to distinguish between different types or qualities of another party in a transaction.
What is Signalling?
The act of conveying information about a product or service through price, quality, or other observable indicators.
What is the Signalling Effect?
The impact that the signals sent by informed parties (such as high prices or quality certifications) have on the perceptions and decisions of uninformed parties.
What is Social Community Surplus?
The overall net benefit that society receives from the consumption of a good or service, taking into account all external effects.
What is Social Optimum Output?
The level of production at which total social welfare is maximized, considering both private and external costs and benefits.
Who is a Stakeholder?
An individual or group that has an interest in or is affected by the operations and outcomes of a firm.
What are Substitutes?
Goods or services that can be used in place of one another; an increase in the price of one typically leads to an increase in demand for the other.
What is the Substitution Effect?
The change in consumption patterns as consumers switch from a relatively more expensive good to a relatively cheaper substitute when prices change.
What is Supply?
The total amount of a good or service that producers are willing and able to offer for sale at different prices.
What is a Supply Curve?
A graphical representation of the relationship between the price of a good and the quantity supplied.
What are Tastes?
The preferences and subjective evaluations that consumers use to choose between different goods and services.
What is Total Revenue?
The total income a firm receives from selling its goods or services, calculated as the price per unit multiplied by the quantity sold.
What is Unitary Elastic Demand?
A situation where a percentage change in price leads to an equal percentage change in the quantity demanded, leaving total revenue unchanged.
What is Unitary Elastic Supply?
A situation where a percentage change in price leads to an equal percentage change in the quantity supplied.
What is Utility?
A measure of the satisfaction or happiness a consumer derives from consuming a good or service.
What is Wealth?
The total value of assets owned by an individual, household, or firm, including financial and non-financial assets.
What is Welfare Loss?
The loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved, often due to market distortions or failures.
