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IB Economics HL 2013+ > Unit 1 Microeconomics > Flashcards

Unit 1 Microeconomics Flashcards

0
Q

accounting costs

A

payments made by a firm in order to acquire resources

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1
Q

abnormal profit

A

​earned when a firm’s revenues are greater that its economic costs (TR > TC)

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2
Q

actual growth

A

occurs when previously unemployed factors of production are brought into use; represented by a movement from a point within a PPC to a new point nearer to the PPC

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3
Q

actual output

A

​production of goods and services that is achieved in an economy in a given time period

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4
Q

ad valorem taxes

A

indirect taxes as a fixed percentage of the price of the good or service

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5
Q

allocative efficiency

A

level of output where marginal cost of producing a good is equal to average revenue, or the price (MC = AR)

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6
Q

barriers to entry

A

​obstacles that may be in the way of potential newcomers to a market

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7
Q

break-even price

A

​price where average revenue is equal to average total cost (AR = ATC); below this price, the firm will shut down in the long run

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8
Q

capital

A

factor of production that is made by humans and used to produce goods and services; it occurs as a result of investment

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9
Q

cartel

A

formal agreement between firms in an industry to undertake concerted actions to limit competition

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10
Q

ceteris paribus

A

(“all other things being equal”) assumption that there is a change in one of the variables, holding the other variables constant

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11
Q

collusive oligopoly

A

where a few firms in an oligopoly act together to avoid competition by resorting to agreements to fix prices or output

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12
Q

competition

A

​occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market

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13
Q

complementary good

A

goods used in combination with each other; they have a negative XED

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14
Q

consumer surplus

A

​additional benefit received by consumers by paying a price that is lower than they are willing to pay

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16
Q

fixed costs FC

A

cost of production that don’t change with the level of output

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17
Q

variable costs VC

A

costs of production that vary with the level of output

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18
Q

total costs TC

A

sum of fixed and variable costs (TC = FC + VC)

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19
Q

average costs AC

A

total costs of production per unit (AC = TC/Q)

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19
Q

credit

A

borrowed money

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20
Q

marginal costs MC

A

additional cost of producing an additional unit of output (MC = ΔTC/ΔQ)

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21
Q

demerit goods

A

​products that are considered to be harmful for people

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22
Q

cross elasticity of demand XED

A

measure of responsiveness of the quantity of one good demanded in response to a change in the price of another good

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23
Q

demand

A

quantity of a product that consumers are willing and able to buy at a given price in a given time period

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24
Q

demand curve

A

​a downward-sloping curve or line illustrating the inverse relationship between price and quantity demanded

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25
Q

demand schedule

A

a table showing the quantity of a product demanded at each price

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26
Q

determinants of demand

A

variables (other than price) that can influence demand; a change in any determinant of demand causes a shift of the demand curve

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27
Q

determinants of supply

A

​variables (other than price) that can influence supply; a change in any determinant of supply causes a shift of the supply curve

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28
Q

direct taxes

A

taxes directly paid to the government, e.g. income tax

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29
Q

diseconomies of scale

A

​increase in average costs in the long run

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30
Q

economic costs

A

sum of accounting and opportunity (implicit) costs

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31
Q

economic good

A

​any good or service that requires scarce resources and thus has a price

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32
Q

economies of scale

A

fall in average costs in the long run

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33
Q

elastic demand

A

change in price of a good and service will cause a proportionately larger change in quantity demanded

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34
Q

elasticity

A

measure of the responsiveness of a variable to changes in any of the variable’s determinants

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35
Q

entrepreneurship

A

​factor of production that brings together the other three factors of production with the aim of making profit

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36
Q

equilibrium

A

point where the quantity demanded is equal to quantity supplied; this creates the market clearing prices, where there is no surplus or shortage

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38
Q

excess demand or shortage

A

the quantity demanded is greater than the quantity supplied; it occurs where the price of a good is lower than the equilibrium price

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38
Q

factors of production

A

land, labour, capital and entrepreneurship

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39
Q

excess supply or surplus

A

the quantity supplied is greater than the quantity demanded; it occurs where the price of a good is higher than the equilibrium price

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40
Q

flat rate taxes

A

indirect taxes where a fixed amount is added to the price of a good or service

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41
Q

free good

A

​any good that is not scarce, and thus has no price, e.g. air, sea water

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42
Q

game theory

A

a method of analysing the way that the “players” in an interdependent relationship (such as oligopoly) make strategic decisions

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43
Q

incentive function of price

A

prices give producers the incentive either to increase or decrease the quantity they supply; a rising price gives the producers the incentive to increase the quantity supplied, as the higher price may allow them to earn higher revenues

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44
Q

incidence of tax

A

(burden of tax) amount of an indirect tax paid by consumers or producers of a good

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45
Q

indirect taxes

A

taxes placed upon the expenditure on a good and service, e.g. sales tax, MWSt

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46
Q

income elasticity of demand YED

A

measure of the responsiveness of demand for a good to a change in consumers’ income

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47
Q

inelastic demand

A

change in price of a good and service will cause a proportionately smaller change in quantity demanded

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48
Q

inferior good

A

good whose demand falls as income rises; an inferior good has negative YED

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49
Q

informal market

A

part of an economy that lies outside the formal economy, consisting of economic activities that are unregistered and legally unregulated

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50
Q

labour

A

work done by humans that is used to produce goods and services

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51
Q

land

A

all raw materials that are used to produce goods and services

52
Q

law of demand

A

as the price of a product increases, the quantity demanded decreases, ceteris paribus

53
Q

law of diminishing average returns

A

​in the short run, as extra units of a variable factor are added to a fixed factor, the output per unit of the variable factor will eventually fall

54
Q

law of diminishing marginal returns

A

in the short run, as extra units of a variable factor are added to a fixed factor, the addition to total output (MP) will eventually fall

55
Q

law of supply

A

as the price of a product increases, the quantity supplied increases, ceteris paribus

56
Q

linear demand function

A

​an equation in the form Qd = a – bP which shows the relationship between the price and the quantity of a product demanded

57
Q

linear supply function

A

an equation in the form Qs = c + dP which shows the relationship between the price and the quantity of a product supplied

58
Q

long run (microeconomics)

A

in terms of the theory of the firm, the period of time in which all factors are variable

59
Q

market economy

A

economy where individuals and firms own the resources and make the economic decisions; prices are set by demand and supply

60
Q

long-run average cost curve LRAC

A

graphical representation of long-run average costs; the LRAC is u-shaped due to economies and diseconomies of scale

61
Q

manufactured goods

A

​goods that have been processed by workers

63
Q

marginal private benefit MPB

A

extra benefit to the consumer of consuming an additional unit of output

64
Q

marginal private cost MPC

A

extra cost to the producer of producing an additional unit of output

65
Q

marginal social benefit MSB

A

​extra benefit of consuming an additional unit of output, including both the private benefit and the external benefit

65
Q

market place

A

where buyers and sellers of a product come together to make an exchange, but doesn’t need to be a physical place

66
Q

marginal social cost MSC

A

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

67
Q

market failure

A

occurs when the production of a good doesn’t take place at the socially efficient level of output (allocative efficiency where MSC = MSB)

68
Q

market structure

A

characteristics of a market organization that determine the behaviour of firms within the industry

70
Q

maximum price or price ceiling

A

price set by the government below the equilibrium price where the market price is not allowed to rise in order to support the consumers of the product (essential goods, house rentals

70
Q

monopolistic competition

A

​market structure characterized by a large number of small firms, producing differentiated products, with no barriers to entry or exit

71
Q

minimum price or price floor

A

price set by the government above the equilibrium price where the market price is not allowed to fall in order to support the producers of the product (minimum wages, agricultural products)

72
Q

monopoly

A

market structure characterized where there is only one firm, or a dominant firm, in the industry; there are high barriers to entry

73
Q

negative externality of consumption

A

external costs to a third party that occur when a product is consumed

74
Q

negative externality of production

A

​external costs to a third party that occur when a product is produced

75
Q

non-collusive oligopoly

A

where firms in an oligopoly do not resort to agreements to fix prices or output; competition tends to be non-price; prices tend to be stable

76
Q

non-price competition

A

​occurs when firms compete with each other on the basis of methods other than price

77
Q

normal good

A

​good whose demand rises as income rises; a normal good has positive YED

78
Q

normative economics

A

​deals with areas that are open to personal opinion

79
Q

oligopoly

A

market structure characterized by a small number of large firms dominating the industry due to high barriers to entry

80
Q

opportunity cost

A

next best alternative foregone when an economic decision is made

81
Q

perfect competition

A

​market structure characterized by a large number of firms, producing homogeneous products, each of which is too small to influence the market; the firms are price takers because of this; there are no barriers to entry or exit

82
Q

planned economy

A

​economy where the government owns all resources and makes all economic decisions

83
Q

positive economics

A

deals with areas that can be proven wrong or right by looking at the facts

84
Q

positive externality of consumption

A

external benefits to a third party that occur when a product is consumed

85
Q

positive externality of production

A

external benefits to a third party that occur when a product is produced

86
Q

potential growth

A

occurs when the quantity and/or quality of factors of production within an economy is increased; it is represented by an outward shift of the PPC

87
Q

potential output

A

possible production that would be achieved in an economy if all available factor were employed

88
Q

price controls

A

setting of minimum or maximum prices by the government so that prices are unable to adjust to their equilibrium level determined by demand and supply

89
Q

price discrimination

A

occurs when a producer charges a different price to different customers for an identical good or service

90
Q

price elasticity of demand PED

A

measure of the responsiveness of the quantity demanded of a good and service to a change in its price

91
Q

price elasticity of supply PES

A

measure of the responsiveness of the quantity supplied of a good and service to a change in its price

92
Q

price taker

A

in perfect competition, each firm is a price taker, taking the equilibrium price set in the market

93
Q

primary products

A

(commodity) any product that is produced in the primary sector, which includes agriculture, forestry, fishing and extractive industries

94
Q

primary sector

A

part of the economy that is dominated by agriculture, forestry, fishing and extractive activities such as mining

95
Q

private sector

A

sector owned by private individuals that produce goods and services

96
Q

producer surplus

A

additional benefit received by producers by receiving a price that is higher than the price they were willing to receive

97
Q

total product TP

A

total output of a firm at a given level of input

98
Q

average product AP

A

output per unit of the variable factor (TP/V)

99
Q

marginal product MP

A

extra output that is produced by using an extra unit of a variable factor (MP = ΔTP/ΔV)

100
Q

product differentiation

A

strategy employed by producers where they attempt to make their products different from those of their competitors; it is a form of non-price competition

101
Q

production possibility curve PPC

A

shows the maximum combinations of goods and services that can be produced by an economy in a given time period, if all resources in the economy are being used fully and efficiently

102
Q

productive efficiency

A

when production is achieved at the lowest cost per unit of output

103
Q

normal profit

A

where TR = TC or revenue is equal to total costs of production, including opportunity costs (or implicit costs)

104
Q

abnormal profit or supernormal profit

A

where TR > TC or revenue is greater than total costs of production, including opportunity costs (or implicit costs)

105
Q

loss

A

where TR < TC or revenue is smaller than total costs of production, including opportunity costs (or implicit costs)

106
Q

profit maximizing level of output

A

where marginal cost is equal to marginal revenue (MC = MR)

107
Q

public good

A

product which is non-rivalrous and non-excludable and so would not be provided at all in a purely free market economy

108
Q

public sector

A

sector owned by the government that provides goods and services

109
Q

rationing

A

method used to divide something up between interested users by making resource allocation and output/income distribution decisions

110
Q

revenue

A

income received by a firm from selling its product

111
Q

total revenue TR

A

price of a product multiplied by the quantity sold (TR = p x q)

112
Q

average revenue AR

A

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

113
Q

marginal revenue MR

A

extra revenue that a firm gains when it sells one more unit of a product (MR = ΔTR/ΔQ)

114
Q

scarcity

A

excess of human wants over what can actually be allocated to fulfill these wants

115
Q

secondary sector

A

part of an economy that includes manufacturing

116
Q

short run (microeconomics)

A

in terms of the theory of the firm, the period of time in which at least one factor of production (usually capital) is fixed

117
Q

short-run average cost curve SRAC

A

graphical representation of short-run average costs; the SRAC is u-shaped due to the law of diminishing marginal returns

118
Q

shut-down price

A

price where average revenue is equal to average variable cost (AR = AVC); below this price, the firm will shut down in the short run

119
Q

signalling function of price

A

prices give signal to both producers and consumers: a rising price gives a signal to producers that they should increase their quantity supplied and signals to consumers that they should decrease the quantity demanded, and vice versa

120
Q

subsidy

A

amount of money given to producers of a product by the government

121
Q

substitute good

A

goods which can be used in place of each other; they have positive XED

122
Q

supply

A

quantity of a product that producers are willing and able to supply at a given price in a given time period

123
Q

supply curve

A

an upward-sloping curve or line illustrating the direct relationship between price and quantity supplied

124
Q

supply schedule

A

a table showing the quantity of a product supplied at each price

125
Q

tertiary sector

A

part of an economy that includes commerce, finance, transport and all other services (e.g. education, health care)

126
Q

transition economy

A

economy in the process of moving from a planned economy towards a more market-oriented economic system

127
Q

utlilty

A

satisfaction or pleasure from consuming a good or service

128
Q

price leader

A

a dominant firm in the market sets the price and also initiates any price changes

IB Economics HL 2013+ (4 decks)

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