Economics IB MYP5 Terms

Christine Laurich
Flashcards by Christine Laurich, updated more than 1 year ago
Christine Laurich
Created by Christine Laurich about 6 years ago


IB MYP5 (Grade 10) Terms for Economics (mainly focusing on demand and supply)

Resource summary

Question Answer
(Effective) Demand The willingness and ability of customers to pay a certain price in a market to obtain a particular good or service.
Capital goods Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment and machinery. Consumer goods are the end result of this production process.
Ceteris paribus All other things equal, i.e. holding all other factors the same to analyze effect of just one.
Choice Have the option of alternatives in the allocation of your limited financial resources.
Complements in production They are produced together, or one is a by-product of the other (e.g. beef producer can make leather, saw mills make boards and also produce wood chips as by-product).
Consumer goods Products that are purchased for consumption by the average consumer. Alternatively called final goods, consumer goods are the end result of production and manufacturing and are what a consumer will see on the store shelf. Basic materials such as copper are not considered consumer goods because they must be transformed into usable products.
Diminishing marginal utility After a certain point, the satisfaction we gain from consuming each additional unit of a good declines. As the value of that unit declines, so will the maximum price we are willing to pay for it. We’re inclined to want to purchase more of a good at lower prices.
Economics The study of rationing systems, of how scarce resources are allocated to fulfill the infinite wants of consumers
Explicit costs A business expense that is easily identified and accounted for. Explicit costs represent clear, obvious cash outflows from a business. Good examples of explicit costs would be items such as wage expense, rent or lease costs, and the cost of materials that go into the production of goods.
Factors of Demand (PIRATES) P - Population I - Income R - Related goods A - Advertisment T - Tastes & Preferences E - Expected prices (in the future) S - Seasonal
P of Pirates Target group of consumers who can/want to buy the product
I of PIRATES Income. Financial/material wealth of consumers
R of PIRATES Related goods (for the consumer). Substitute goods (exchange one for the other – inversely related, e.g. Pepsi/Coke), Complementary goods (demand for one causes demand for the other – directly related, e.g. car/fuel).
A of PIRATES Advertisement. Communication used to encourage/persuade consumers, created by the seller
T of PIRATES Tastes & Preferences. Trends, styles, friends’ choices, seasonal attire
E of PIRATES Expectation (of future prices) Higher price next week = buy now; lower price next week = buy then; price unchanged, buy when needed
S of PIRATES Seasonal. Sales session to meet changing demands (e.g. winter, summer, spring, fall, cross-over, back-to-school, etc.)
Factors of production (CELL) C - Capital E - Enterpreneurship L - Labor L - Land
C of Cell Capital. Capital is all of the tools and machinery used to produce a good or service.
E of CELL Enterpreneurship. The entrepreneur is the individual who takes an idea and attempts to make an economic profit from it by combining all other factors of production. The entrepreneur also takes on all of the risks and rewards of the business.
L of CELL Labor. Labor is all of the work that laborers and workers perform at all levels of an organization, except for the entrepreneur
L of CELL Land. Land represents all natural resources, such as timber and gold, used in the production of a good.
Free goods Not limited in supply and therefore have no opportunity cost when they are consumed, e.g. regular air, salt water.
Free Market System Producers and consumers decide what, how and for whom to produce through their exchange or trade in different goods and services. Suppliers will generate what they can sell at the highest price, as consumer choices dictate.
Goods Tangible physical objects, e.g. vegetables, meat, cars, clothes.
Implicit costs A cost that is represented by lost opportunity in the use of a company's own resources, excluding cash. The implicit cost for a firm can be thought of as the opportunity cost related to undertaking a certain project or decision, such as the loss of interest income on funds. Implicit costs can also be thought of as intangible costs that are not easily accounted for. For example, the time and effort that an owner puts into the maintenance of the company can be viewed as an implicit cost of running the business.
Income effect As the price of a good we purchase declines, our unchanged nominal income feels like more – in fact, our purchasing power, or real income, has risen. We feel richer and are therefore inclined to purchase more units of the things we want to buy.
Inferior good (demand) Demand for this product will fall, if income rises and the consumer starts to buy higher priced substitutes in place of the inferior good; the demand curve for inferior products shifts left as the income increases. When income gets to a certain level, consumers will only buy the higher priced goods and the demand for the inferior good will become zero; the demand curve for it will disappear.
Law of demand The quantity demanded for a good or service falls as its price rises, ceteris paribus.
Law of diminishing returns As people consumer more of a particular good or service, the utility (return or satisfaction) gained from the marginal unit declines, so customers will only purchase more at a lower price.
Law of increasing opportunity costs - For every additional unit of one product made, more units of the other product are foregone than for the previous one. - ACDC Econ example: making one robot only sacrifices 1 pizza, making the second gives up 4 more, making the third robot means additional 10 pizzas less, making the fourth means an extra 15 less pizzas (i.e. none are being made anymore) – every additional robot costs more pizzas than the previous one. - Concave PPC due to that.
Law of supply The law of supply states that as quantity supplied increases as the price increases, ceteris paribus.
Market Where buyers and sellers come together to carry out an economic transaction; e.g. physical market place where goods are directly exchanged for money, online markets.
Market Equilibrium The intersection of the supply and demand curves: The market price and quantity satisfy the plans of the buyers reflected in the demand curve and the plans of the sellers reflected in the supply curve. At this unique price, the quantity supplied equals the quantity demanded.
Market Forces The profit motive of firms and the changing preferences of consumers determine the allocation of resources, of how factors of production are used to solve the problem of what, how and for whom to produce.
Mixed Economies Combines government planning with the use of the free market. People in the private sector own scarce resources with the aim of making as much profit as possible. In the public sector the government own some scarce resources to produce goods and services that they think their country, and its people, need and want (but that the private sector would not supply at a reasonable price).
Needs Essential to ensure survival, e.g. food, shelter, clothing
Normal good (demand) As income rises, the demand for the product will also rise; demand curve shifts to the right.
Opportunity Cost What you give up in order to have something else or the next best alternative foregone when an economic decision is made.
Planned economy The government determines what, how and for whom is produced; it controls and allocates the resources and often sets the price as well.
PPC Production Possibilities Curve or Frontier; a curve depicting all maximum output possibilities for two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently.
Price mechanism Price (high or low) signals what consumers want and will influence profit-seeking producers.
Private sector Made up of all the organizations and firms owned by members of the general public, including private individuals and voluntary organizations. They own (buy or hire) the resources and decide how to use them.
Public sector Resources for production are owned and controlled by a government; consists of government organizations and goods&services provided by the government, such as the state education, roads, public parks, armed forces, the legal system.
Quantity demanded The quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period.
Resources Inputs that are used to make goods and services (CELL, technology, etc.)
Scarcity When goods are finite but wants are infinite. Everything that has a price is scarce relative to people’s demand for it. The ability to purchase a good/service is determined by the amount of money the consumer has and the price set by the provider.
Services Intangible efforts, e.g. car repairs, haircut, insurance.
Substitutes in production Made form the same inputs (e.g. peanut butter, peanut bars) which enables the supplier to trade production of one for the other.
Substitution effect As the price of a good rises, consumers have an incentive to seek out alternative goods that might fulfill their needs as well as the more expensive good. To whatever degree they can find substitutes that meet their needs, the quantity demanded of the expensive goods declines.
Supply Relationship between quantity produced per unit of time and the price of the good. It is how much suppliers are willing and able to bring to market at a given price.
Supply shifters (TIGRESS) T - Technology I - Input prices G - Government policies R - Related goods' prices E - Expectations of future prices S - Suppliers S - Shocks & Weather
T of TIGRESS Anything that enables faster, better, and cheaper production, i.e. raises productivity levels; e.g. training workers to be more efficient, breakthrough advances in research & development.
I of TIGRESS Input prices. Changes in the cost of resources needed to produce a good affect the supply for that good inversely, e.g. wages make workers more expensive, which will shift the supply curve to the left.
G of TIGRESS Government policies. Per-unit tax (supply shifts left): As suppliers have to collect and transfer the tax to the government, it means they will need a higher price than before in order to be willing to provide the same quantity of the good for sale. Per-unit subsidy (supply shifts right): as the government adds an amount to the amount paid by the consumer, the seller receives market price plus the subsidy payment and can thus sell the same quantity at a lower market price.
R of TIGRESS Related goods' prices. In the production process, substitutes in production are made form the same inputs (e.g. peanut butter, peanut bars) which enables the supplier to trade production of one for the other; as the price for one rises, production will shift to that one and decrease the supply of the other. Complements in production are produced together, or one is a by-product of the other (e.g. beef producer can make leather, saw mills make boards and also produce wood chips as by-product); as one increases, so does the other.
E of TIGRESS Expectations of future prices. If a good’s value is expected to decrease, flood the market now; if you think it will catch a higher price later, increase inventory and wait for a higher market price.
S of TIGRESS Suppliers. Number of producers/suppliers/sellers in the market.
S of TIGRESS Shocks & Weather. Unexpected, uncontrolled events outside the producer’s control, e.g. blizzard, earth quake, war, draught, disease.
Universal inputs Some resources, like labor, electricity, and oil, are commonly used to produce or distribute many goods and services and are considered (near) universal inputs.
Unrelated good (demand) A change in the price of one product will have no effect upon the demand for the other product, e.g. toilet paper and cars.
Wants Desired, but not necessary for immediate physical survival, e.g. phones, TVs, computers.
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