IB Economics 2.7 Role of Government in Microeconomics Key Definitions

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.

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

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

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

When a government alters the resource allocation that markets would have achieved working freely on their own.

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 (firms) who collect and transfer these taxes to the government authorities (consumers pay the taxes indirectly).

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

A method used to influence the decision of a consumer in a desirable way, without offering any financial incentives or imposing any legal regulations over them.

The value of the next best option that must be forgone or sacrificed in order to acquire something else.

A maximum price, below the equilibrium price, set by the government for a particular good or service.

Refers to the setting of a maximal/minimal price above/below the equilibrium price by the government.

A minimum price set by the government for a good, above the equilibrium price.

The difference between the price sellers receive and the lowest price that they are willing and able to accept.

Establishment of requirements and standards to regulate behaviour.

Monetary help (direct or indirect payment) offered by the government to firms (sometimes households) to aid in lowering costs of production.