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Unit 2 IB Economics
Vocabulary for unit 2 test and quiz
| Term | Definition |
|---|---|
| competitive markets | markets that have many buyers and sellers so that no single buyer or seller can influence the price |
| demand | Consumer willingness and ability to buy products |
| demand curve | a curve that shows the relationship between the price of a product and the quantity of the product demanded |
| law of demand | the claim that, other things being equal, the quantity demanded of a good falls when the price of the good rises and visa versa |
| market demand | the sum of all the individual demands for a particular good or service |
| non-price determinants of demand | The variables (other than price) that can influence demand, and that determine the position of a demand curve; a change in any determinant of demand causes a shift of the demand curve, which is referred to as a 'change in demand'. |
| normal good | a good for which, other things equal, an increase in income leads to an increase in demand |
| inferior good | a good for which, other things equal, an increase in income leads to a decrease in demand |
| substitute goods | Two or more goods that satisfy a similar need, so that one good can be used instead of the other. If two goods are substitutes, an increase in the price of one leads to an increase in the demand for the other. |
| complementary goods | Products and services that are used together. When the price of one falls, the demand for the other increases (and conversely). |
| quantity demand | the amount of a good or service that a consumer is willing and able to purchase at a given price |
| law of diminishing marginal utility | The principle that as a consumer increases the consumption of a good or service, the marginal utility obtained from each additional unit of the good or service decreases. |
| substitution effect | the change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes |
| income effect | the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power |
| supply | The quantity of something that producers have available for sale |
| supply curve | A curve that shows the relationship between the price of a product and the quantity of the product supplied. |
| law of supply | the claim that, other things equal, the quantity supplied of a good rises when the price of the good rises |
| market supply | the sum of the quantities supplied by each seller in the market at each price |
| quantity supply | How much of a good or service producers are willing and able to supply at one price level |
| non-price determinants of supply | The variables (other than price) that can influence supply, and that determine the position of a supply curve; a change in any determinant of supply causes a shift of the supply curve, which is referred to as a 'change in supply'. |
| competitive supply | In the case of two goods, refers to production of one or the other by a firm; in other words the two goods compete with each other for the same resources |
| joint supply | Refers to the production of two or more goods that are derived from a single product, so that it is not possible to produce more of one without producing more of the other. |
| law of diminishing marginal returns | As more of a variable resource is added to a given amount of a fixed resource, marginal product eventually declines and could become negative |
| Marginal Cost (MC) | the increase in total cost that arises from an extra unit of production |
| excess supply (surplus) | the condition that exists when quantity supplied exceeds quantity demanded at the current price |
| excess demand (shortage) | the condition that exists when quantity demanded exceeds quantity supplied at the current price |
| market equilibrium | condition of price stability where the quantity demanded equals the quantity supplied |
| equilibrium price | the price at which the quantity demanded equals the quantity supplied |
| equilibrium quantity | the quantity supplied and the quantity demanded at the equilibrium price |
| price mechanism | price signals which determines allocation of resources through interaction of supply and demand |
| price as signals | The ability of prices, and changes in prices, to communicate information to consumers and producers, on the basis of which they make economic decisions. |
| price as incentives | The ability of prices, and changes in prices, to convey information to consumers and producers that motivates them to respond by offering them incentives to behave in their best-self-interest. |
| price rationing | the allocation of goods among consumers using prices |
| allocative efficiency | when the mix of goods being produced represents the mix that society most desires |
| Marginal Benefit (MB) | the additional benefit to a consumer from consuming one more unit of a good or service |
| consumer surplus | the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it |
| producer surplus | the amount a seller is paid for a good minus the seller's cost of providing it |
| social (community) surplus | the sum of consumer and producer surplus |
| welfare | the well-being of the stakeholders |
| deadweight loss | the total loss of producer and consumer surplus from underproduction or overproduction |
Created by:
TrueLearner(CHAD)