IB Economics 2. Microeconomics Key Definitions

When a firm's average revenue is greater than its average costs.

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

State of the economy in which the combination and quantity of goods and services produced is aligned with the preferences of consumers and producers, maximising social surplus.

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

Obstacles such as legal protection, control of an essential resource, or large cost advantages that make it hard for new firms to enter a market, allowing existing firms to keep their market power.

A relatively recent field of economics founded on the notion that human behaviour is significantly more complex than the traditional assumptions of rational consumer choice.

Fluctuations in the growth of real output, characterised by alternating phases of expansion (rising real output) and contraction (falling real output).

A carbon tax is a Pigouvian tax levied on the carbon content of fossil fuels, charging emitters a set price for each tonne of carbon dioxide (or equivalent greenhouse gas) released. By adding the external cost of emissions to the private cost of production, it raises marginal private cost toward marginal social cost, giving firms and consumers an ongoing incentive to cut emissions and switch to cleaner alternatives.

The way in which options are showcased to decision-makers where there is emphasis on the design and environment to influence decisions.

An income flow in an economy where the value of the output produced is equivalent the total income earned from its production, which is also equivalent to the expenditures spent on purchasing that output.

The situation where a common pool resources are given to the control of individuals for them to manage it in a sustainable manner.

Natural resources which are available for use for everyone, but are susceptible to overuse and depletion.

Goods or services in Competitive Supply are alternate use of resources of each other where they compete for the use of the same resources.

Goods that tend to be used together.

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

Various quantities of a good or service that consumers are willing and able to buy at different possible prices during a particular time period, ceteris paribus.

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

When the government directly delivers the goods/services to the public.

Tax paid to the government directly by the taxpayer (individual).

The process of increasing real per capita income while improving living standards and reducing poverty within an economy as whole.

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

A curve showing the quantity demanded of a good at each level of consumer income, holding all prices constant. Its slope and shape reveal the good's income elasticity of demand (YED).

The condition of being fair and just.

Refers to the concept where there is a fair resource distribution.