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IB Economics: Micro/Macro
HL Vocabulary
40
Economics
12th Grade
05/01/2013

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Cards

Term
Reasons demand curve is downward sloping
Definition
Law of diminishing marginal utility; income effect (real income increases as price decreases); substitution effect
Term
Veblen (ostentatious) goods
Definition
exception to law of demand; conspicuous consumption (increase in price, increase in Q demanded)
Term
Giffen good
Definition
exception to law of demand; goods which are absolutely vital for a person; inferior goods; income effect is more powerful than the substitution effect;
Term
Speculative goods
Definition
exception to law of demand; As share prices increases, so does the quantity demanded of shares, as individuals predict further price increases
Term
tragedy of the commons
Definition
overcrowding; too many individuals acting in self-interests deplete a good; lack of rationing
Term
Grey markets
Definition
where a product is bought and sold outside of the manufacturer's authorized trading channels; eg. pay at price ceiling for rent, but then have to pay more for furniture (skirting around the price control)
Term
Buffer stock scheme
Definition
government tries to regulate the price level of a good or service by buying the good up when demand is too low or selling off any surplus when demand is too high; tend to be expensive (storage costs, opportunity costs); alternative = pay to leave fields fallow
Term
Commodity agreements
Definition
agreements between countries to attempt to stabilise commodity prices; eg. OPEC
Term
YED
Definition
Income elasticity of demand
Term
ad valorem tax
Definition
a tax which is a percentage of the price of a good
Term
deadweight loss
Definition
he loss in social net benefits that no-one receives: it occurs because less is supplied than is socially optimal
Term
income elasticity for different sectors
Definition
primary > secondary > tertiary
Term
Fixed capital
Definition
financing by borrowing money from the bank or by selling bonds in the bond market or through retained earnings
Term
Risk capital
Definition
financing by issuing shares
Term
Working capital
Definition
financing from retained earnings or by short term loans from banks
Term
Opportunity Cost Rate of Return
Definition
minimum amount that must be earned to get economic profits
Term
most small companies fail for three reasons:
Definition
poor marketing, poor financing, poor management
Term
cost theory
Definition
Companies must balance revenues and costs so as to maximize profit
Term
Three types of inventories
Definition
raw materials, intermediate (semi-finished) goods, and final goods
Term
inventories
Definition
must be financed by working capital and require storage space; act as shock absorbers
Term
When does the firm reaches long run equilibrium?
Definition
when there is no opportunity for cost reducing substitutions: the ratio of MPs to factor costs is equal
Term
Technical change is often "endogenous"
Definition
(it is in response to something going on in the production process rather than just some accidental discovery going on in a totally unrelated way
Term
T or F? The growth in productivity does not appear to be as rapid for services as there are less opportunities to substitute machines for people
Definition
True
Term
Return on investment (ROI)
Definition
The net revenue is divided by the total investment in the firm
Term
Allocative efficiency
Definition
occurs when output is at society's optimum level. P=MC
Term
Productive efficiency
Definition
when a firm produces at the lowest possible cost per unit. ATC=MC
Term
kinked demand curve
Definition
oligopolies, illustrates the downward-stickiness of prices. The fear of changing prices and then loosing numerous customers is too big to actually change prices.
Term
Theory of contestable markets
Definition
even in a monopoly or oligopoly, the existing companies will behave competitively when there is a lack of barriers to prevent new companies from entering the market
Term
Natural monopoly
Definition
A monopoly which has gained its status because of massive economies of scale
Term
Dynamic efficiency
Definition
appropriately balances short run and long run concerns; the ability to adapt quickly and at low cost to changed economic conditions
Term
Controlling monopoly
Definition
make it illegal (USA), state control, consider advantages/disadvantages, issue licence
Term
First degree price discrimination
Definition
Each person buying a good or service pays as much as they are wiling to pay. (eg. auction)
Term
Second degree price discrimination
Definition
Consumers are charged differing prices determined by the quantity that they purchase.
Term
Third degree price discrimination
Definition
Different market segments identified by the seller are charged at varying rates. Highly dependent on separating the market segments. Good examples are youth discounts or senior citizen rates.
Term
Parallel Economy
Definition
Many people work and is unrecorded by the authorities. This includes both black markets (selling illegal goods) and informal markets (selling legal goods illegally to circumvent price restrictions).
Term
Laffer curve
Definition
a graph showing the relationship between tax rate and government revenue
Term
Lorenz curve
Definition
a graph showing the distribution of wealth in the economy.
Term
Gini coefficien
Definition
a number between 0 and 1 quantifying the distribution of wealth in the economy. 1 is perfectly unequal distribution and 0 representing perfectly equal distribution.
Term
Producer Price Indexes (PPI)
Definition
A family of indexes that measure the average change over time in selling prices by domestic producers of goods and services.
Term
What are the major objectives of macroeconomic policy?
Definition
(i) full employment, (ii) price stability, (iii) a high, but sustainable, rate of economic growth, and (iv) keeping the Balance of Payments in equilibrium
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