IB Higher Level Microeconomics Exam Revision

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Posted on

May 24th, 2023

question

Demand

answer

describes a consumer's ability and willingness to purchase a specific product or service at a certain price level, at a specific point in time.

question

The Law of Demand

answer

states that a negative relationship exists between the price of a good and the correlated quantity demanded of the good, ceteris paribus.

question

Supply

answer

describes producers' ability and willingness to supply the market with different quantities of specific products at different prices.

question

The Law of Supply

answer

states that there will be a positive correlation between a good's market price and the quantity produced, ceteris paribus.

question

Market Equilibrium

answer

describes the intercept between the supply and the demand curve, where a theoretical market left to its own devices will congregate in terms of price and quantity.

question

Consumer surplus

answer

is the extra utility gained by consumers when they purchase a good at a lower price than what they are willing to pay.

question

Producer surplus

answer

is the extra earnings gained by producers when they are able to sell their goods at a higher price than what they are willing to pay.

question

Maximum Price

answer

is an artificially low price (below equilibrium) set by an authority (government) when it deems the market price too high.

question

Minimum Price

answer

is an artificially high price (above equilibrium) set by an authority (government) when it deems the market price too low.

question

Price Elasticity of Demand (PED)

answer

is a measure of a good's responsiveness in terms of quantity demanded when there is a change in price. PED= % change in Qd/ % change in P

question

Price Elasticity of Supply (PES)

answer

is a measure of a good's responsiveness, in terms of quantity supplied when there is a change in price.
PES= % change in Qs/ % change in P

question

Cross Price Elasticity of Demand (XPE)

answer

is a measure of good X's responsiveness in terms of quantity demanded when there is a change in the price of good Y.
XPE= % change in Qd of good X/ % change in P of good Y

question

Income Elasticity of Demand (yED)

answer

is a measure of a good's responsiveness in terms of quantity demanded when there is a change in income.
yED= % change in Qd/ % change in y

question

Flat Rate Tax

answer

a tax where every unit is levied at the same amount. Often the tax is placed on weight (per kilo).

question

Ad Valorem Tax

answer

a value added tax, which positively increases with the price of the good. Most often a percentage (VAT).

question

Subsidies

answer

is a monetary grant from governments and firms.

question

The Law of Diminishing Returns

answer

states that if 1 factor is fixed, the marginal product yielded from additional variable input will eventually diminish.

question

Revenue

answer

is a monetary measure of a firm's income, received by selling its goods and services.

question

Total Revenue Formula

answer

TR = P * Q

question

Average Revenue Formula

answer

AR = P*Q/R = P

question

Marginal Revenue Formula

answer

MR = change in TR/ change in Q

question

Costs

answer

are the expenses incurred for a firm, monetary or otherwise, as a consequence of production.

question

Total Cost formula

answer

TC = TVC + TFC (total variable + total fixed)

question

Average Cost formula

answer

AC = TC/Q

question

Marginal Cost Formula

answer

MC = change in TC/ change in Q

question

Perfect competition market

answer

is defined by its assumptions, namely that the market is host to a very large number of small firms where no single firm is large enough to influence the market price.

question

Monopoly

answer

is a market structure defined by its assumptions, namely that the market consists of a single, powerful firm that has price-setting power.

question

Monopolistic competition

answer

is a market structure defined by its assumptions, namely that the market is host to a few, very powerful firms, each with considerable price-setting power. The market is characterised by large barriers to entry.

question

Price discrimination

answer

is the act of selling the exact same good to different consumers at different prices.

question

imperfect competition

answer

theoretically, a market left to its own devices will establish equilibrium at the intercept of supply and demand. A firm with market power may hinder this, creating an efficiency loss and market failure.

question

externalities

answer

exists when the production or consumption of a good has an (unaccounted for) effect on a third party.

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question

Demand

answer

describes a consumer's ability and willingness to purchase a specific product or service at a certain price level, at a specific point in time.

question

The Law of Demand

answer

states that a negative relationship exists between the price of a good and the correlated quantity demanded of the good, ceteris paribus.

question

Supply

answer

describes producers' ability and willingness to supply the market with different quantities of specific products at different prices.

question

The Law of Supply

answer

states that there will be a positive correlation between a good's market price and the quantity produced, ceteris paribus.

question

Market Equilibrium

answer

describes the intercept between the supply and the demand curve, where a theoretical market left to its own devices will congregate in terms of price and quantity.

question

Consumer surplus

answer

is the extra utility gained by consumers when they purchase a good at a lower price than what they are willing to pay.

question

Producer surplus

answer

is the extra earnings gained by producers when they are able to sell their goods at a higher price than what they are willing to pay.

question

Maximum Price

answer

is an artificially low price (below equilibrium) set by an authority (government) when it deems the market price too high.

question

Minimum Price

answer

is an artificially high price (above equilibrium) set by an authority (government) when it deems the market price too low.

question

Price Elasticity of Demand (PED)

answer

is a measure of a good's responsiveness in terms of quantity demanded when there is a change in price. PED= % change in Qd/ % change in P

question

Price Elasticity of Supply (PES)

answer

is a measure of a good's responsiveness, in terms of quantity supplied when there is a change in price.
PES= % change in Qs/ % change in P

question

Cross Price Elasticity of Demand (XPE)

answer

is a measure of good X's responsiveness in terms of quantity demanded when there is a change in the price of good Y.
XPE= % change in Qd of good X/ % change in P of good Y

question

Income Elasticity of Demand (yED)

answer

is a measure of a good's responsiveness in terms of quantity demanded when there is a change in income.
yED= % change in Qd/ % change in y

question

Flat Rate Tax

answer

a tax where every unit is levied at the same amount. Often the tax is placed on weight (per kilo).

question

Ad Valorem Tax

answer

a value added tax, which positively increases with the price of the good. Most often a percentage (VAT).

question

Subsidies

answer

is a monetary grant from governments and firms.

question

The Law of Diminishing Returns

answer

states that if 1 factor is fixed, the marginal product yielded from additional variable input will eventually diminish.

question

Revenue

answer

is a monetary measure of a firm's income, received by selling its goods and services.

question

Total Revenue Formula

answer

TR = P * Q

question

Average Revenue Formula

answer

AR = P*Q/R = P

question

Marginal Revenue Formula

answer

MR = change in TR/ change in Q

question

Costs

answer

are the expenses incurred for a firm, monetary or otherwise, as a consequence of production.

question

Total Cost formula

answer

TC = TVC + TFC (total variable + total fixed)

question

Average Cost formula

answer

AC = TC/Q

question

Marginal Cost Formula

answer

MC = change in TC/ change in Q

question

Perfect competition market

answer

is defined by its assumptions, namely that the market is host to a very large number of small firms where no single firm is large enough to influence the market price.

question

Monopoly

answer

is a market structure defined by its assumptions, namely that the market consists of a single, powerful firm that has price-setting power.

question

Monopolistic competition

answer

question

Price discrimination

answer

is the act of selling the exact same good to different consumers at different prices.

question

imperfect competition

answer

question

externalities

answer

exists when the production or consumption of a good has an (unaccounted for) effect on a third party.

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