Ib Economics Sl Definitions

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Economics

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The social science studying how individuals and societies distribute finite resources across virtually unlimited wants through the use of rationing systems.

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Free Market

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Where consumers and producers are autonomous, with no interference of the government

(Adam Smith - Invisible Hand)

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Planned Economy

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Economy planned by government

(Karl Marx - Marxism)

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Economic Good

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Any good or service that is under the effect of a rationing device

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Opportunity Cost

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The next best alternative forgone when an economic decision is made.

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Free Goods

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Things not limited by supply because they are not scarce and thus have no opportunity cost.

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Factors of Production

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Land, Labour, Capital, Management/Entrepreneurship

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Total Utility

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Total satisfaction gained from consuming a product

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Marginal Utility

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Extra utility gained from consuming one more unit of a product

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Microeconomics

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smaller, discrete economic agents and their reactions to changing events

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Macroeconomics

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wider view measuring all economic activity in a market

(company, economy, etc.)

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Positive Economics

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Deals with areas that can be proven to be correct by facts

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Normative Economics

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Deals with areas that cannot be proven by facts

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'real'

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having allowed for the effects of inflation

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GDP

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Gross Domestic Product

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GNI

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Gross National Income

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Gross Domestic Product

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monetary measure of the market value of all final goods and services produced in a period (quarterly or yearly)

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HDI

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The Human Development Index (HDI) is a composite statistic of life expectancy, education, and per capita income indicators, which are used to rank countries into four tiers of human development.

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Disadvantages of Free Market

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- Over-distribution of demerit goods

- Under-distribution of merit goods

- Environmental damage

- No support of disabled, orphans, unemployed, sick, elderly

- Domination of large firms

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Disadvantages of Planned Economy

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- miscalculations lead to shortages, surpluses or misallocation of resources

- Lack of efficiency

- Lack of incentive

- Loss of personal freedom

- Conflicting interests with populus

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Utility

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Pleasure or satisfaction gained from economic good

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ceteris paribus

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all other factors being equal or holding all factors constant

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Public Sector

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The part of national economy providing basic goods or services that are either not, or cannot be, provided by the private sector.

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Public Sector

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The private sector is the part of the economy, sometimes referred to as the citizen sector, which is run by private individuals or groups, usually as a means of enterprise for profit, and is not controlled by the State (areas of the economy controlled by the state being referred to as the public sector).

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Economic Growth

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Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time.

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Basic Economic Questions

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What?

How?

For whom?

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PPC

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The production possibility curves is a hypothetical representation of the amount of two different goods that can be obtained by shifting resources from the production of one, to the production of the other at a certain period of time.

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Market

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Where buyers and sellers come together to perform an economic transaction

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Demand

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The quantity of an economic good that consumers are willing and able to buy at a given price

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Law of Demand

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As the price of a good falls, the quantity demanded will increase (cp)

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Demand Schedule

Demand Curve

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Table

Graph

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Income Effect

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When price falls people will have more real income and feel rich

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Substitution Effect

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With a lower price, a product becomes more appealing than substitute goods

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Non-price Determinants of Demand

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consumer income, number of consumers, related (complementary and substitute) goods, consumer tastes, expectations, seasonal changes, government intervantion

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Veblen Goods

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