Economics - IBDP

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Abnormal profit

When a firm's total revenue is greater than its total costs (TR > TC)

Absolute poverty

The inability to afford the basic goods and services required to meet essential needs

Adverse selection

When one of the sides has more knowledge about the quality of the product sold than the other

Allocative efficiency

The situation where the market produces the socially desirable quantity of output

Asymmetric information

Refers to situation where buyers and sellers don't have the same access to information

Comparative advantage

A country having lower opportunity costs in the production of a good compared to another country

Consumer price index (CPI)

A measure of the cost of living carried out by comparing the value of a basket of goods and services in a given year to a base year

Consumer surplus

The difference between the highest price consumers are willing to pay for a good or service and the actual price they end up paying

Demerit Good

Goods that are not socially desirable but are over provided by the market

Economies of scale

Reductions in average production costs that arise when a firm increases its output by scaling up all its inputs in the long run

Expansionary fiscal policy

Fiscal policy aimed at increasing aggregate demand by increasing government spending or reducing taxes

Externality

The spillover effects on third parties, due to actions of consumer or producers

Indirect tax

Taxes levied on spending on goods and services. They are called indirect because while consumers contribute to part or all of the tax, it is the suppliers who collect and transfer these taxes to the government authorities

Law of diminishing marginal utility

As more of a good is consumed, the additional satisfaction (marginal utility) gained from each extra unit decreases, and so consumers will only be incentivised to buy another unit if the price decreases

Marginal cost

The cost of producing an additional unit of output

Market failure

Occurs when firms fail to efficiently allocate the resources within an economy

Monetary policy

The adjustments of the interest rates and the availability of money in the economy set by the central bank

Nash equilibrium

A situation where none of the players can improve their position by making another choice.

Pigouvian taxes

Form of tax imposed on activities that generate negative externalities

Supply-side policies

Government policies aimed at increasing the productive capacity of the economy and improving market efficiency

The Tragedy of the Commons

A situation where individuals acting in their own self interest, overuse and degrade a shared resource, which causes long term harm to the resource and the society

Utility

The satisfaction obtained from consuming a good or service

Quantitative easing

A monetary policy where the central bank purchases financial assets from the market to increase the money supply