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IB Higher Level Economics


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Microeconomics refers to the study of small discrete markets within the macroeconomy
Macroeconomics refers to the study of the economy as a whole.
Economics is a social science, which studies human behaviour and how scarce resources are allocated to satisfy unlimited wants.
Economic Problem
To satisfy unlimited wants with limited resources
Positive economics
Positive economics refers to the empirical study of economics that can be substantiated through fact.
Ceteris Paribus
All other things being equal
Land refers to the gifts of nature eg soil, diamonds, timber
Capital refers to goods that can be used to produce other goods. An increase in the capital stock will increase the capacity of the economy to produce
The human factor, physical and mental contribution of the existing work force to production
The organization of the factors of production in order to produce goods and services
All resources are finite. Since wants are unlimited, resources are relatively scarce. All goods and services that have a price are scarce
Normative economics
Normative economics refers to the study of the economy using value judgements
Gross Domestic Product: the total market value of all final good and services produces within the borders of a country within a given period of time
Economic growth
The percentage change of the total market value of all final good and services produces within the borders of a country within a given period of time
Two successive quarters of negative economic growth
An increase in living standards that implies increased per capita income, better education, access to health care, sanitation, nutrition as well as environmental protection
Satisfaction derived from consuming a good
Opportunity cost
The cost of the best alternative foregone
Free goods
0 price, 0 production cost, 0 opportunity cost in consumption and production and freely abundant
Economic goods
Final goods that derive a price
Normal good
Good for which demand rises as income rises, ceteris paribus
Inferior good
Good for which demand falls as income rises, ceteris paribus
Capital good
Non-consumable goods that firms use to make other goods
Giffen good
A type of inferior good in that as income decreases quantity demanded increases however giffen goods are further characterized by when price increases, quantity demanded also increases, ceteris paribus
Veblen good
A status good - when price increases, the quantity demanded for the good also increases, ceteris paribus
Production possibility curve
The PPC shows all the combinations of two goods that can be produced if all resources are fully utilized in their best use
Actual output
Refers to that level of GDP the economy is currently operating in the short run, actual output may not necessarily occur at full employment
Potential output
The level of output that would arise if all resources were fully utilized in their best use. An economy has reached its potential output when it is operating on the frontier of its Production Possibility Curve
The willingness and the ability to produce goods and services at a particular price and time ceteris paribus
Equilibrium occurs when there is no tendancy to change
Two goods that have the same function eg butter and margarine
Two goods that are consumed together eg butter and bread
A payment per unit of production
Direct Tax
Refers to tax on income
Indirect Tax
A tax on goods
Flat rate tax
A regressive tax that is charged at a constant rate such as a parking ticket
Ad valorem tax
A indirect tax (a tax on goods) which will shift back the supply curve parallel from S to S1

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