IB Economics SL: Microeconomics

the study of how individuals and groups make decisions regarding the allocation of scare resources.

little of something available, rare, limited quantity. Key Problem is using limited resources to satisfy relatively unlimited wants.

the value of the next best alternative that is foregone. What you give up in your consumption and production of one thing when you choose to consume or produce another thing.

intangible products, such as a haircut or insurance and again may be consumed immediately or overtime.

the state:owned sector of the economy that provides goods and services.

refers to any society (country) that is moving away from a centrally planned economy towards a more free market based economy.

the quantity of a good or service that consumers are willing and able to purchase, at a given time, at all possible prices.

the quantity of a good or services that consumers are willing and able to purchase at a given time, at one possible price.

As the price of a good rises, the quantity demanded for it falls. (As the price of a good falls, the quantity demand for it rises)

the quantity of a good or service that producers are willing and able to produce at all possible prices.

the quantity of a good or service that producers are willing and able to produce at any one particular price.

As the prices increase, the quantity supplied increases. (Higher prices motivate producers to expand output) - explains why slope moves upward to the right!

when a market has Quantity Demanded = Quantity Supplied

The repurchasing of all of a company's outstanding stock by employees or a private investor.

Government ownership of an industry or company. opposite of denationalization.

measure of how much the demand for a product changes when there is a change in one of the factors that determine demand.

measure of how much the quantity of demanded of a product changes when there is a change in the price of a the product.

measure of how much the demand for a product changes when there is a change in the price of another product.

measure of how much the demand for a product changes when there is a change in the consumers income.

measure of how much the quantity supplied of a product changes when there is a change in the price of the product.

To have a situation where the demand curve is a vertical line is to think of a good where a certain quantity is demanded, regardless of the price. Any % change in price that will not cause a % change in QD (unresponsive) - Heroin for addicts

Quantity Demanded is infinitely responsive to evaluate even the slightest change in price. P.E.D value = infinity. The demand curve is a horizontal line.

any % change in price will cause an equal %change in quantity demanded. P.E.D. = 1 (If there is a 2%decrease in price=2%decrease in QD)

Government imposed maximum or minimum prices instituted by the government that after free market prices: 2 types (Price ceilings and floors)

Government imposed legal MAXIMUM price which can be charged for a good/service. A government would use this if it felt the free market price is too HIGH. This the price ceiling would be set BELOW the old free market price. EX rent control, food (Ramadan)

Government imposed legal MINUMUM price which can be changed for a good/service. A government would use this if it felt the free market price is too LOW. This the price floor would be set ABOVE the old free market price. Ex. Minimum wage

Government prices floor policies that also usually involve the government guaranteeing farmers that they will buy up the surplus that is produced.

A situation where in a free market (without government intervention) sometimes, a society will OVER produce/OVER consumes some goods/services and UNDER produce/UNDER consume some other goods/services.

are good that non:excludable and non:depletable. They are invariably provided by government because there's no way a private firm can profitably produce them. They are considered to be an example of market failure.

excludability: this means it in not possible to prevent non:payers from consuming it.(available to one, available to all)

depletability: this means that the consumption of the good by one person doesn't mean there is less of the good available for others to consume.

are goods and services that the government feels that people left to themselves will UNDER CONSUME and UNDER PRODUCE which therefore ought to be subsidized or provided free to users. Ex is education. The consumption of merit goods results in positive externalities.

are goods and services that government feels are harmful and that individuals left to themselves will tend to OVERCONSUME and OVER PRODUCE the good. Thus the govt will try to discourage us by making it illegal (crack) or regulate the goods use (booze), through public information campaigns or through taxing the good heavily. The consumption of demerit goods results in negative externalities.

results when external costs are imposed on a person or group not part of the production or consumption process. For Ex. When a firm produces a good they have to private costs (extraction of materials, labour) but they may cause social externality costs, if they caused pollution, polluting a lake, killing fish and starting a disease.

result when an economic activity yields benefits to individuals who don't directly pay for the good. In this case external benefits acquire to individuals other than consumers of the good. The social benefit exceeds the private benefits. Ex. Breath mints, Collingwood, education.

Tax imposed on one person or group with the intent that it will be paid by that particular person or group (Income taxes/property taxes)

A tax placed on one person or group (producers) that is 'passed onto' (paid by) another group (consumers) (Sales taxes - HST)

A set price, fee per unit sold ($100 for A/C)

A percent of the selling price (13% HST in Canada)

money provided by some level of government to a firm to encourage them to increase production

Govt. program that involves them setting a price floor (usually for certain agricultural goods) and then agreeing to buy the surplus that is created

Government imposed legal minimum price that can be charged for a good/service

Government imposed legal maximum price that can be charged for a good/service

Government imposed prices that alter the previously established free market price.

Difference between what an individual is willing to pay and what one actually pays when buying a good/service.

Difference between what a producer is willing to sell and what one actually receives when selling a good/service.

When the value consumers place on a good/service equals the cost of the resources used up in production

Natural resources or human-made systems for managing natural resources that are non-excludable but depletable (THEREFORE NOT A PUBLIC GOOD) and encourages overuse

When consumption needs of the present generation are met without reducing the ability to meet the needs of future generations

Goods where without government provision, they would be underproduced.Because private firms will not benefit from them, no incentive to supply them

Consumption of the good by one person won't leave any less of the good available for others

It is extremely difficult to provide the good to one person without it thereby being available for the other, too

If you know a good/service will be produced to all, regardless of if you pay or not, you will have the incentive to not pay.

Goods/services that the govt. feel that people left to themselves will underconsume the good such as education, healthcare (in canada), libraries, CPR course;generates positive externalities

(social benefit of consumption > private benefits) when an economic activity yields benefits to individuals who don't directly pay for the good

Goods/services that the govt. feel that people left to themselves will overconsume the good;generates negative externalities.

(social costs of consumption > private costs) when an economic activity imposes external costs on a person/group not part of the production process