IB ECONOMICS U2 KEY TERMS

REFERENCE BOOK: Economics for the IB Diploma 3rd Edition by Ellie Tragakes

Market

Market

Any kind of arrangement where buyers and sellers interact to exchange goods, services, or resources.

Competitive market

A market structure characterized by many buyers and sellers, where no single participant has the power to influence the market price.

Competition

A proces in which rivals compete in order to achieve some objective.

Demand

Thev various quantities of a product that the consumer is willing and able to buy at different possible prices, during a particular time period, ceteris paribus.

Law of demand

The negative relationsip between the demanded quantity of products and its price, over a particular time period and tis price, ceteris paribus.

Market demand

The total quantity of a good or service that all consumer in a market are willing and able to purchase at various prices.

Utility

The satisfaction or pleasure derived from consuming a good or service.

Util

A hypothetical unit of measurement for utility, used to quantify the level of satisfaction.

Marginal utility

The additional satisfaction or benefit received from consuming one more unit of a good or service.

Law of diminishing marginal utility

The principle that as more units of a good or service are consumed, the additional satisfaction gained from consuming each additional unit will eventually decrease.

Law of supply

The positive relationsip between the supplied quantity of products and its price, over a particular time period, ceteris paribus.

Supply

The various quantities of a product that the firm is willing and able to produce and supply to sell at different possible prices, during a particular time period, ceteris paribus.

Market supply

The total quantity of a good or service that all firms in a market are willing and able to sell at various prices.

Short run

A period of time during which at least one factor of production is fixed, limiting the ability of firms to change production levels.

Long run

A period of time in which all factors of production are variable, allowing firms to adjust all inputs and production levels fully.

Product

A good or service produced to satisfy a consumer's need or want.

Marginal product

The additional output produced by employing one more unit of a factor of production, such as labor or capital.

Law of diminishing marginal returns

As more units of a variable input are added to one or more fixed inputs, marginal product reaches a point when it begins to decrease, assuming the fixed inputs and level of technology are fixed.

Marginal cost

The additional cost incurred from producing one more unit of a good or service.

Competitive market equilibrium

The point where the quantity demanded equals the quantity supplied, resulting in no pressure to change the market price.

Price mechanism

The process by which prices adjust to equate demand and supply by acting as a signal and incentive.

Allocative efficiency

A state of resource allocation where the mix of goods and services produced is just what consumers desire, maximizing total welfare.

Marginal benefit

The consumer’s willingness to pay for the last or marginal unit bought for its extra benefit.

Consumer surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Producer surplus

The difference between the price producers receive for a good or service and the minimum price they are willing to accept.

Social/community surplus

The total surplus in a market, calculated as the sum of consumer and producer surplus, representing the overall welfare of society.

Vertical supply curve

A supply curve that is perfectly inelastic, indicating that the quantity supplied is fixed and does not change with price.

Market power/monopoly power

The ability of a firm or group of firms to influence or control the price and output in a market.

Supply schedule

A table showing the quantities of a good or service that producers are willing to supply at different prices.

Demand schedule

A table showing the quantities of a good or service that consumers are willing to buy at different prices.

Shortage

A condition where the quantity of a product or service demanded is greater than the quantity supplied at the market price.

Surplus

A condition where the the quantity supplied is greater than quantity of a product or service demanded at the market price.

Income effect

The change in the quantity demanded of a good due to a consumer’s increased purchasing power from lower product prices, often only applicable for goods with larger fractions of income.

Substitution effect

The change in the quantity demanded of a good due to substituting/buying more products with lower prices.

Non-price determinants of Supply

Costs of FoP, technology, price of related goods: joint supply, price of related goods: competitive supply, firm/price expectations, taxes, subsidies, shocks, number of firms

Non-price determinants of Demand

Income in the case of normal goods, Income in the case of inferior goods, preference and tastes, price of complementary goods, price of substitute goods, number of consumers