IB Micro Economics

Flashcard #1
Term: Scarcity
Definition: The fundamental economic problem arising due to limited resources compared to infinite human wants.

Flashcard #2
Term: Three Economic Questions
Definition: What to produce? How to produce? For whom to produce?

Flashcard #3
Term: Production Possibilities Curve (PPC)
Definition: A graphical representation illustrating all possible combinations of two goods that can be produced with available resources and technology.

Flashcard #4
Term: Being 'on the curve' in a PPC
Definition: Represents maximum efficiency and full employment of resources.

Flashcard #5
Term: Being 'inside the curve' in a PPC
Definition: Indicates underutilization of resources, suggesting inefficiencies.

Flashcard #6
Term: Being 'outside the curve' in a PPC
Definition: Represents unattainable production levels with current resources.

Flashcard #7
Term: Indirect Tax
Definition: Taxes employed by governments to discourage consumption of harmful goods or to regulate prices.

Flashcard #8
Term: Subsidies in economics
Definition: Government financial aid to firms aimed at lowering production costs and increasing supply.

Flashcard #9
Term: Market Failure
Definition: A situation where the allocation of goods and services by a free market is not efficient.

Flashcard #10
Term: Monopolistic Competition
Definition: A market structure where many firms sell differentiated products, with some market power retained.

Flashcard #11
Term: Oligopoly
Definition: A market structure characterized by a few firms dominating the market with interdependent pricing and output decisions.

Flashcard #12
Term: Key objectives of Macroeconomic Policy
Definition: Growth, stability, and full employment.

Flashcard #13
Term: Government Intervention
Definition: Actions taken by government to affect the economy through policies like taxes, subsidies, and regulations.

Flashcard #14
Term: Specific Tax
Definition: A fixed amount charged per unit sold, often used to discourage consumption.

Flashcard #15
Term: Ad Valorem Tax
Definition: A tax based on the percentage of the sale price of a product.

Flashcard #16
Term: Common Access Resources
Definition: Resources available to all that can be overused leading to sustainability issues, like over-fishing.

Flashcard #17
Term: Demand in economics
Definition: The quantity of a good or service that consumers are willing and able to purchase at various prices.

Flashcard #18
Term: Factors causing a shift in Demand
Definition: Changes in consumer preferences, income levels, prices of substitutes or complements, and expectations of future prices.

Flashcard #19
Term: Supply in economics
Definition: The total quantity of a good or service that producers are willing and able to sell at various prices.

Flashcard #20
Term: Factors causing a shift in Supply
Definition: Production costs, technological advancements, number of sellers, and expectations about future prices.

Flashcard #21
Term: Competitive Market Equilibrium
Definition: A state where the quantity demanded equals the quantity supplied, resulting in no shortage or surplus.

Flashcard #22
Term: Critique of maximizing behavior in consumers
Definition: It assumes consumers act rationally to maximize utility, which may not consider behavioral biases or limited information.

Flashcard #23
Term: Critique of maximizing behavior in producers
Definition: It assumes firms aim to maximize profits, which may overlook ethical considerations and market constraints.

Flashcard #24
Term: Elasticity of Demand
Definition: A measure of how much the quantity demanded of a good changes in response to a change in price.

Flashcard #25
Term: Types of Elasticity of Demand
Definition: Price elasticity, income elasticity, and cross elasticity of demand.

Flashcard #26
Term: Elasticity of Supply
Definition: A measure of how much the quantity supplied of a good changes in response to a change in price.

Flashcard #27
Term: Types of Elasticity of Supply
Definition: Price elasticity of supply and cross elasticity of supply.

Flashcard #28
Term: Role of government in microeconomics
Definition: Governments may intervene to correct market failures, regulate monopolies, and provide public goods.

Flashcard #29
Term: Externalities in market failure
Definition: Costs or benefits of a market activity borne by third parties, leading to over or under-consumption of goods.

Flashcard #30
Term: Public Goods
Definition: Goods that are non-excludable and non-rivalrous, resulting in free-rider problems and under-provision.

Flashcard #31
Term: Asymmetric Information
Definition: A situation where one party in a transaction has more information than the other, leading to market inefficiencies.

Flashcard #32
Term: Price Elasticity of Demand (PED)
Definition: A measure of the responsiveness of quantity demanded to a change in price.

Flashcard #33
Term: Factors determining Price Elasticity of Demand
Definition: Availability of substitutes, necessity vs luxury, proportion of income spent, and time period for adjustment.

Flashcard #34
Term: Price Elasticity of Supply (PES)
Definition: A measure of the responsiveness of quantity supplied to a change in price.

Flashcard #35
Term: Factors determining Price Elasticity of Supply
Definition: Production flexibility, time period, and the availability of raw materials.

Flashcard #36
Term: Formula for Price Elasticity of Demand (PED)
Definition: PED = (% Change in Quantity Demanded) / (% Change in Price)

Flashcard #37
Term: Negative externalities
Definition: Costs incurred by third parties who did not choose to incur that cost, often associated with pollution or other harmful effects.

Flashcard #38
Term: Positive externalities
Definition: Benefits received by third parties who did not choose to incur that benefit, such as education or vaccination.

Flashcard #39
Term: Negative externalities and market failure
Definition: They can cause overproduction of goods that generate external costs, leading to inefficiency and welfare loss.

Flashcard #40
Term: Common pool resources
Definition: Resources that are available to all, such as fisheries and forests, which can be over-exploited due to lack of ownership.

Flashcard #41
Term: Tragedy of the commons
Definition: A situation in which individuals acting in their own self-interest deplete or degrade a common resource, leading to long-term collective loss.

Flashcard #42
Term: Solutions to common access resource problems
Definition: Potential solutions include regulation, privatization, or community management to ensure sustainable use.

Flashcard #43
Term: Impact of externalities on consumer and producer behavior
Definition: Externalities can distort the true costs and benefits of goods, leading to decisions that do not align with overall societal welfare.

Flashcard #44
Term: Purpose of government intervention in the case of externalities
Definition: To correct market failures by imposing taxes, subsidies, or regulations to align private costs/benefits with social costs/benefits.

Flashcard #45
Term: Role of education in addressing externalities
Definition: Educating consumers and producers about the impacts of their actions can help reduce negative externalities and enhance positive ones.

Flashcard #46
Term: Types of government intervention
Definition: Includes regulations, taxes, subsidies, and public goods provision.

Flashcard #47
Term: Regulation in government intervention
Definition: A rule or directive made and maintained by an authority to manage economic activities.

Flashcard #48
Term: How taxes function as government intervention
Definition: Taxes can discourage undesirable behaviors or behaviors that lead to negative externalities.

Flashcard #49
Term: Purpose of subsidies
Definition: To lower production costs, encourage consumption, or support certain industries.

Flashcard #50
Term: How government intervention addresses market failure
Definition: By implementing policies to correct inefficiencies caused by externalities or public goods.

Flashcard #51
Term: Potential drawbacks of government intervention
Definition: Can lead to government failure, market distortions, and reduced overall efficiency.

Flashcard #52
Term: How government intervention impacts consumer behavior
Definition: Through subsidies and regulations, government can influence prices and availability of goods.

Flashcard #53
Term: Example of government intervention in negative externalities
Definition: Imposing a carbon tax to reduce emissions associated with pollution.

Flashcard #54
Term: Implications of government intervention for producers
Definition: May alter production costs, demand for goods, and competitiveness of firms.

Flashcard #55
Term: How opportunity cost relates to government intervention
Definition: Government must consider the trade-offs of resources used in interventions versus other potential uses.

Flashcard #56
Term: How Price Elasticity of Demand (PED) is calculated
Definition: PED is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Flashcard #57
Term: Expression for % Change in Quantity Demanded
Definition: The expression for % Change in Quantity Demanded is [(New Quantity - Original Quantity) / Original Quantity] multiplied by 100.

Flashcard #58
Term: Expression for % Change in Price
Definition: The expression for % Change in Price is [(New Price - Original Price) / Original Price] multiplied by 100.

Flashcard #59
Term: PED value exceeding 1 significance
Definition: A PED value greater than 1 signifies that demand is elastic, meaning that quantity demanded changes significantly with price changes.

Flashcard #60
Term: PED value below 1 significance
Definition: A PED value less than 1 indicates that demand is inelastic, meaning that quantity demanded changes little with price changes.

Flashcard #61
Term: PED value of 1 significance
Definition: A PED value equaling 1 indicates unitary elasticity, meaning the percentage change in quantity demanded equals the percentage change in price.

Flashcard #62
Term: Importance of PED for businesses
Definition: Understanding PED enables businesses to effectively set prices to maximize revenue based on consumer responsiveness to price changes.

Flashcard #63
Term: Significance of PED in tax policy
Definition: PED is crucial for tax policy as it aids governments in forecasting the effects of taxes on consumption and revenue.

Flashcard #64
Term: How PED relates to revenue generation
Definition: In the case of elastic demand, reducing prices may boost total revenue; for inelastic demand, increasing prices may enhance total revenue.