Unit 2 IB Econ Vocab

Market - Any kind of arrangement where buyers and sellers of a particular good, services, or resource are linked together to carry out an exchange. 

Competition - Occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market.

Competitive Markets - A market composed of many buyers and sellers acting independently, none of whom has the ability to influence the price of the product. 

Demand - Indicates the various quantities of a good that consumers (or a consumer) are willing and able to buy at different possible prices during a particular time period, ceteris paribus. 

Demand Curve - A curve showing the relationship between the price of a good and the quantity of the good demanded, ceteris paribus. 

Law of Demand - a law stating that there is a negative relationship between the price of a good and quantity of the good demanded, over a particular time period, ceteris paribus: as the price of the good increases, the quantity of the good demanded decreases. 

Market Demand - Refers to the sum of all the individuals demands for a good or service. 

Non Price Determinants of Demand - The variables (other than price) that can influence supply, and that determine the position of a supply curve; a change in any determinant of supply causes a shift of the supply curve. 

Normal Good - A good the demand for which varies positively (or directly) with income; this means that as income increases, demand for the good increases. 

Inferior Good - A good the demand for which varies negatively (or inversely) with income; this means that as income increases, the demand for the good decreases. 

Substitutes (substitute goods) - Two or more goods that satisfy a similar need, so that one good can be used in place of another. If two goods are substitutes, an increase in the price of one leads to an increase in the demand for another. 

Complements (complementary goods) - Two or more goods that tend to be used together. If two goods are complements, an increase in the price of one will lead to a decrease in the demand of another. 

Utility - A subjective concept, it is the satisfaction that consumers gain from consuming something. 

Substitution effect - Part of an explanation of the law of demand; there is an inverse relationship between price and quantity demanded because as price falls consumers substitute the now less expensive good for other products (the other part is the income effect). 

Income effect - Part of an explanation of the law of demand; as price falls real income increases causing the consumer to buy more of the good (the other part is the substitution effects). 

Law of Diminishing Marginal Utility - A law stating that as consumption of a good increases, marginal utility, or the extra utility the consumer receives, decreases with each additional unit consumed, therefore consumers will buy more only if the price falls; this underlies the law of demand.

Supply - Indicates the various quantities of a good that firms (or a firm) are willing and able to produce and sell at different possible prices during a particular time period, ceteris paribus. 

Supply Curve - A curve showing the relationship between the price of a good and the quantity of the good supplied, ceteris paribus. 

Law of Supply - A law stating that there is a positive relationship between the price of a good and the quantity of the good supplied, over a particular time period, ceteris paribus: as the price of the good increases, the quantity of the good supplied also increases. 

Market Supply - Refers to the sum of all individual firm supplies of a good or service. 

Non Price Determinants of Supply - The variables (other than price) that can influence supply, and that determine the position of a supply curve; a change in any determinant of supply causes a shift of the supply curve. 

Competitive Supply - In the case of two goods, refers to production of one or the other by a firm; in other words the two gods compete with each other for the same resources. 

Joint Supply - refers to production of two or more goods that are derived from a single product so that it is not possible to produce more of one without producing more of the other. 

Subsidy - An amount of money paid by the government to firms for a variety of reasons: to prevent an industry from failing, to support producers’ incomes, or as a form of protection against imports. A subsidy granted to a firm results in a higher level of output and lower prices for consumers. May also be paid to consumers as financial assistance or for income redistribution

. 

Short Run - In microeconomics it is a time period during which at least one input is fixed and cannot be changed by the firm. 

Long Run - In microeconomics it is a time period in which all inputs can be changed; there are not fixed inputs. 

Total Products - The total quantity of output produced by a firm

Marginal product - The extra or additional output that results from one additional unit of a variable input. (i.e. labor)

Law of Diminishing Marginal Returns - A law stating that as more and more units of a variable input are added to one or more fixed inputs, the marginal product of the variable input at first increases, but there comes a point when the marginal product of the variable input begins to decrease; underlies the firms’  supply curve. 

Total Cost - The total cost incurred by a firm that undertakes production of something. 

Marginal Cost - The extra or additional cost of producing one more unit of output. 

Excess Supply - In the context of demand and supply, occurs when the quantity of a good demanded is smaller than the quantity supplied, leading to a surplus.

Surplus - In general , this is the excess of something over something else to which it is being compared. In the context of demand and supply, it is the extra supply that results when a quantity supplied is greater than quantity demanded. In the case of consumer and producer surplus, it is the extra benefit that consumers get by paying les for a good than the amount they are willing to pay, or the extra benefit that producers get by receiving a high price for the good they are selling than the price they are willing to receive. In the case of government budget, a surplus occurs when government revenues are greater than government expenditure. Finally in the balance of payments, a surplus in an account occurs when the credits (inflow of money from abroad) are larger than the debts (outflows of money to other countries). 

Excess Demand -In the context of demand and supply, occurs when the quantity of a good demanded is greater than the quantity supplied, leading to a shortage of the good. 

Shortage - In the context of demand and supply, is the amount by which quantity demanded is greater than quantity supplied. 

Equilibrium - A state of balance such that there is no tendency to change

Market equilibrium - Occurs where quantity demanded is equal to quantity supplied, and there is no tendency for the price or quantity to change. 

Equilibrium Price - The price determined in a market when quantity demanded is equal to quantity supplied, and there is no tendency for the price to change; it is the price that prevails when there is market equilibrium. 

Equilibrium Quantity - The quantity that is bought and sold when a market is in equilibrium, i.e when quantity demanded is equal to quantity supplied.  

Competitive Market Equilibrium - The equilibrium that emerges at the point where the demand curve intersects the supply curve in a free competitive market. (where there is no government intervention). 

Price Mechanism - The system where prices are determined by demand and supply in competitive markets, resulting from the free interaction of buyers (demanders) and sellers (suppliers); these interactions determine the allocation of resources. 

Signaling - In the event of asymmetric information this is a method used by the seller when the seller has more information, which attempts to convince the buyer that the product is of good quality; for example use of warranties or establishment of brand names. 

Prices as Incentive - The ability of prices, and changes in prices, to convey information to consumers and producers that motivates them to respond by offering them incentives to behave in their best-self-interest; firms according to the law of supply and consumers according to the law of demand; compare with prices as signals, which together with prices as incentives lead to an efficient allocation of resources. 

Allocative Efficiency - An allocation of resources that results in producing the combination dn quantity of goods and services mostly preferred by consumers. The condition for allocative efficiency is given by MSB=MSC (marginal social benefit = marginal social cost or P=MC (price is equal to marginal cost)); alternatively it is when social surplus is maximum. 

Marginal Benefit - The extra or additional benefit received from consuming one more unit of output .

Consumer Surplus - Refers to the difference between the highest and lowest prices consumers are willing to pay for  a good and the price actually paid. In a diagram, it is shown by the areas under the demand curve and above the price paid by consumers up to quantity purchased. 

Producer Surplus - refers to the difference between the price received by firms for selling their good and the lowest price they are willing to accept to produce the good, In a diagram, it is shown as the area under the price received by producers and above the supply curve up to the quantity sold. 

Social Surplus (community surplus) - The sum of consumer and producer surplus; oy is maximum in a competitive market with no market failures.

Welfare - In general, refers to the well-being of a population. In microeconomics, it is measured by the amount of social surplus (consumer and producer surplus) that is generated in a market. Welfare is greatest, i.e. social surplus is greatest, in a competitive market equilibrium when there are no externalities, and marginal social benefits are equal to marginal social costs (MSB=MSC).

Welfare Loss -  Refers to loss of a portion of social surplus that arises when marginal social benefits are not equal to marginal social costs (MSB≠MSC), due to marginal failure.