IB ECONOMICS DEFINITIONS
1: MICROECONOMICS
1.1 DD and SS
Demand
The willingness and ability of consumers to purchase a particular good or service at
various prices in a given time period, ceteris paribus
Supply
The willingness and ability of producers to supply a particular good or service at various
prices in a given time period, ceteris paribus
Excess demand
The quantity demanded of a good exceeds the quantity supplied of a good in a given
period of time at prevailing price
Marginal cost of production
The addition to the total cost from producing an additional unit of output
Complements
Goods that are used jointly to satisfy a particular want or need
Substitutes
Alternative products that satisfy the same wants or needs
Joint supply
Goods that are produced jointly with the same resources
Competitive supply
Goods that are produced with the same resources such that resources used in
production of one good cannot be used in production of the other goo
,Consumer surplus
The difference between what consumers are willing and able to pay for a unit of the
good and the actual amount they pay for that unit of a good
Producer surplus
The difference between the revenue producers receive from that sale of a unit of good
and the price at which producers are willing to make that unit of goods available for sale
1.2 Elasticities
PED
The responsiveness of the quantity demanded of a good or service to a change in its
price, ceteris paribus
XED
The responsiveness of a demand of a good or service to a change in the price of
another good, ceteris paribus
YED
The responsiveness of a demand of a good or service to a change in income, ceteris
paribus
PES
The responsiveness of the quantity supplied of a good or service to a change in its
price, ceteris paribus
1.3 Government intervention
Price Ceiling
Legal maximum price set below the market equilibrium price by the government
Price Floor
Legal minimum price set above the market equilibrium price by the government
, Indirect tax
Taxes levied on goods and services paid by firms to government and has the effect of
increasing cost of production
Direct tax
Taxes directly levied on the household, individual or corporation.
Subsidy
Payments from governments to firms with the aim of lowering their cost of production
Payments from government to firms to encourage the production of a merit good
1.4 Market Failure
Market Failure
The failure of the government to achieve efficiency in the allocation of society’s
resources, resulting in an over-allocation or under allocation of resources in the
absence of government intervention
Economic efficiency
Each good is produced at the minimum average cost, with individuals people and firms
getting the maximum benefit from the resources
Productive efficiency
Where firms are producing the maximum output for a given amount of input/ producing
a given output at the least cost
Allocative efficiency
When firms produce the particular combination and quantities of goods and services
that consumers most desire, when MB = MC assuming no externalities
Social efficiency
When marginal social cost is equal to marginal social benefit
1: MICROECONOMICS
1.1 DD and SS
Demand
The willingness and ability of consumers to purchase a particular good or service at
various prices in a given time period, ceteris paribus
Supply
The willingness and ability of producers to supply a particular good or service at various
prices in a given time period, ceteris paribus
Excess demand
The quantity demanded of a good exceeds the quantity supplied of a good in a given
period of time at prevailing price
Marginal cost of production
The addition to the total cost from producing an additional unit of output
Complements
Goods that are used jointly to satisfy a particular want or need
Substitutes
Alternative products that satisfy the same wants or needs
Joint supply
Goods that are produced jointly with the same resources
Competitive supply
Goods that are produced with the same resources such that resources used in
production of one good cannot be used in production of the other goo
,Consumer surplus
The difference between what consumers are willing and able to pay for a unit of the
good and the actual amount they pay for that unit of a good
Producer surplus
The difference between the revenue producers receive from that sale of a unit of good
and the price at which producers are willing to make that unit of goods available for sale
1.2 Elasticities
PED
The responsiveness of the quantity demanded of a good or service to a change in its
price, ceteris paribus
XED
The responsiveness of a demand of a good or service to a change in the price of
another good, ceteris paribus
YED
The responsiveness of a demand of a good or service to a change in income, ceteris
paribus
PES
The responsiveness of the quantity supplied of a good or service to a change in its
price, ceteris paribus
1.3 Government intervention
Price Ceiling
Legal maximum price set below the market equilibrium price by the government
Price Floor
Legal minimum price set above the market equilibrium price by the government
, Indirect tax
Taxes levied on goods and services paid by firms to government and has the effect of
increasing cost of production
Direct tax
Taxes directly levied on the household, individual or corporation.
Subsidy
Payments from governments to firms with the aim of lowering their cost of production
Payments from government to firms to encourage the production of a merit good
1.4 Market Failure
Market Failure
The failure of the government to achieve efficiency in the allocation of society’s
resources, resulting in an over-allocation or under allocation of resources in the
absence of government intervention
Economic efficiency
Each good is produced at the minimum average cost, with individuals people and firms
getting the maximum benefit from the resources
Productive efficiency
Where firms are producing the maximum output for a given amount of input/ producing
a given output at the least cost
Allocative efficiency
When firms produce the particular combination and quantities of goods and services
that consumers most desire, when MB = MC assuming no externalities
Social efficiency
When marginal social cost is equal to marginal social benefit
