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814738
IB Economics SL: Microeconomics
Description
A mind map for key elements of Microeconomics for Paper 1 questions
No tags specified
ib
economics
microeconomcis
ib economics sl
international baccalaureate
Mind Map by
Han Zhang
, updated more than 1 year ago
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Created by
Han Zhang
over 10 years ago
3131
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Resource summary
IB Economics SL: Microeconomics
Scarcity
Opportunity Cost
the cost of the next best thing forgone
Production Possibility Curve
Capital goods/ consumer goods
Move inside
Law of diminishing returns
Achieving productive efficiecy
Shift
Economic Growth
Utility
satisfaction or pleasure gained from an economic action
Finite source, infinite wants
What to produce? How to produce? For whom to produce?
Land, Labor, Capital, Enterprise
Market - Allocation of resources
Demand
a want backed by the willingness and ability to buy at a given price
Move along
Income/ Substitution effects
Shift
Income
Population
Price of complements
Price of substitutes
Tastes and preferences
Supply
the quantity of a good or service producers are able and willing to supply to a market at a give price
Move along
Extension/ contraction
Shift
Cost of production
New firms entering a market
Indirect taxes and subsidies
Price of subsitutes
Technological advancement
Ceteris paribus
Market Equilibrium
Equilibrium exists when Demand = Supply
Equilibrium price - (Market clearing price)
Disequilibrium - excess demand or supply
Price Mechanism
a signal, an incentive and a rationing device to allocate resources in a market
Market Efficiency
Surpluses
Producer
the extra revenue gained by producers (Marginal costs)
Consumer
the extra utility gained by consumers (Marginal benefits)
Allocative Efficiency
consumer wants are satified
Elasticity
PED
the responsiveness of the quantity demanded to a chance in price
Elastic - responsive Inelastic - not responsive
Determinants of PED
Closeness of substitues
Close subs - elastic
Luxury or necessity
Luxury - elastic Necessity - inelastic
Percentage of income spent on the good
Less spent, more inelastic
Time period
In the long term, demand more elastic
Commodities - inelastic, few subs Manufactured - elastic, many subs
PES
responsiveness of the quantity supplied to a change in price
Determinants of PES
Time Period
Very SR - all fixed SR - some fixed LR - all variable
Level of spare capacity
Spare = PES
Type of good
E.g. Agriculture
Level of stocks
Response to demand
XED
responsiveness of the quantity demanded of one good to a change in price of another
Determine Substitutes/ Complements relationship
YED
responsiveness of the quantity demanded to a change in the real income of consumers
Determine Normal/ Inferior goods
Government Intervention
Minimum/ Maximum Prices
Price floor (above eq point)
Excess supply
Shift Demand
Price ceiling (under eq point)
Excess demand
Parallel market
Shift Supply
Indirect taxation
Tax incidence (Consumer/ Producer)
Depends on PED and PES
Ad valorem (% tax) Specific (fixed amount)
Subsidy
payments by a government to producers
Increase supply
Comment on Consumer/ Producer surplus, producer revenue, government revenue and expenditure and impact on eq price and quantity
Market Failure and Government Response
Externalities
Negative
Production
MSC > MPC
E.g. Pollution
Consumption
MSB < MPB
E.g. Cigarettes
Government Respose
Taxation
Disadvantages
Difficult to estimate the spillover effect
Price inelastic D or S have little effect
Income inequality
Loss of international competitiveness
Creation of black market
Advantages
Direct Impact
e.g.Carbon tax
Tradable Permits
Reduction of Pollution
Quotas
Incentive to be environmentally efficient
More efficient firms buying more to produce more
Regulation
Measure and set standards for firms to comply
However,...
Difficult to set an optimal limit
Cost of regulation
Disincentive to change, when benefits from staying outweigh the costs of change
Extending property rights
Regulated through legal rights
Not effective in ELDCs due to lack of legal system
International co-operation
UN Reduction on greenhouse gases
Political problems
Still 30 countries are committed to reach the outcome
Positive
Production
MSC < MPC
R&D in technology
Consumtion
MSB > MPB
Vaccines
Government Response
Subsidy
Hard to estimate MEC
Opportunity Cost on other social benefits
PED > 1, ineffective
Free provision
e.g Education, healthcare
Lack of funding especially in ELDCs
Information
Educate the population
Make informed choices
Could be inefficient
Government expediture
the costs or benefits of production or consumption that are experienced by their parties but not by the producers and consumers who cause them
Merit and Demerit Goods
Merit goods
consumers consume too few goods and services that are seen as being good for them
e.g. Education
Demerit goods
consumers consume too many goods and services that are seen as being bad for them
e.g. alcohol
Preferred solution: Education and Information on choices
Common Access Resources and Sustainability
CAR - are resources that are available to everyone without payment, do not have a price, and are not woned bt anyone
e.g. Air, biodiversity
non-excludable but rivalrous
Sustainability
resources are used today in such a way that does not compromise their use by future generations
Response similar to negative externalities
Economic activities threatens sustainability
Requires International co-operation
EU emissions Trading System
Public Goods
non-excudability
even if you have paid for a good you cannot confine its use to yourself
non-rivalry
the consumption of a good does not reduce its availability to others
"Free rider" effect
e.g. National defense or street lamps
Why and how market fails and evaluate the solutions
Asymmetric info
Abuse of monopoly power
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