IB Economics

• Scarcity


  the condition that results from limited resources combined with unlimited wants
• Opportunity Cost


  Cost of the next best alternative use of money, time, or resources when one choice is made rather than another
• Factors of Production


  resources of land, labor, capital, and entrepreneurship used to produce goods and services
• Land


  the physical location where production occurs. Includes bodies of water as well as resources extracted from the earth.
• Labor


  the work done by humans that is used in the production of goods and services.
• Capital


  previously manufactured goods used to make other goods and services
• Entrepreneurship


  the process of starting, organizing, managing, and assuming the responsibility for a business
• Market


  a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade
• Demand


  The quantity of a good or service that consumers are willing and able to purchase at a given price in a given period of time.
• Consumer Demand


  The amount of a good or service a consumer is willing and able to purchase at a range of prices.
• Market Demand


  the demand by all the consumers of a given good or service
• Law of Demand


  the claim that, ceteris paribus, the quantity demanded of a good falls when the price of the good rises
• Demand Curve


  a graph of the relationship between the price of a good and the quantity demanded.The Law of Demand implies that this curve is negatively sloped.
• Determinants of Demand


  Anything other than price of the current item that influences consumer buying decisions, including income, tastes and preferences, price of related items (substitutes and complements), number of consumers in the market, and expected future price.
• Supply


  The quantity of a product that producers are willing and able to produce at a given price in a given period of time.
• Market Supply


  the total of all individual suppliers' products in a market at a particular time
• Determinants of Supply


  Anything other than price of the current item that influences production decisions, including cost of raw materials, cost of labor, level of technology used to produce, number of producers in the market, price of related products, and expected future price.
• Equilibrium


  a situation in which the market price has reached the level at which quantity supplied equals quantity demanded
• Scarcity


  when a price is below equilibrium causing quantity demanded to be greater than quantity supplied
• Surplus


  when a price is above equilibrium causing quantity demanded to be less than quantity supplied
• Price Mechanism


  price signals which determines allocation of resources through interaction of supply and demand
• Consumer Surplus


  the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. It is seen as excess utility for the consumer.
• Producer Surplus


  the amount a seller is paid for a good minus the seller's cost of providing it. It is viewed as excess satisfaction for the producer.
• Community Surplus


  the sum of consumer and producer surplus; the total benefit to society, this is maximised at the equilibrium.
• Allocative Efficiency


  the apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers); the output of each product at which its marginal cost and price or marginal benefit are equal
• Utility


  Benefits or customer value received by users of the product
• Price Elasticity of Demand


  The responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product's price.
• Price elastic


  The demand for a product is highly responsive to price changes. The range of a demand curve where elasticities of demand are greater than 1.0.
• Price inelastic


  The demand for a product is not very responsive to price changes. The range of a demand curve where elasticities of demand are less than 1.0.
• Unit elastic


  a given change in price causes a proportional change in quantity demanded. The point of any demand curve where revenue is maximised.
• Perfectly elastic demand


  Any increase in price results in all demand being eliminated.
• Perfectly inelastic demand


  the case where the quantity demanded is completely unresponsive to price, and the price elasticity of demand equals zero.
• Cross (Price) Elasticity of Demand


  a measure of how much the quantity demanded of one good responds to a change in the price of another good, computed as the percentage change in quantity demanded of the first good divided by the percentage change in the price of the second good.
• Substitutes


  two goods for which an increase in the price of one leads to an increase in the demand for the other. Occurs when XED is a positive value.
• Complements


  two goods for which an increase in the price of one leads to a decrease in the demand for the other. Occurs when XED is a negative value.
• Income Elasticity of Demand

  a measure of how much the quantity demanded of a good responds to a change in consumers' income, computed as the percentage change in quantity demanded divided by the percentage change in income
• Normal good


  a good for which demand goes up when income is higher and for which demand goes down when income is lower.
• Inferior good


  a good that consumers demand less of when their incomes increase. Occurs when yED is a negative value.
• Price Elasticity of Supply


  a measure of how much the quantity supplied of a good responds to a change in the price of that good, computed as the percentage change in quantity supplied divided by the percentage change in price
• Indirect Tax


  a tax levied on goods or services rather than on persons or organizations