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Mind Map
by
Han Zhang
, created
more than 1 year ago
A mind map for key elements of Microeconomics for Paper 1 questions
Pinned to
3298
38
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No tags specified
ib
economics
microeconomcis
ib economics sl
international baccalaureate
Created by
Han Zhang
almost 11 years ago
Close
814738
mind_map
2019-01-23T01:25:59Z
IB Economics SL:
Microeconomics
Scarcity
What to produce?
How to produce?
For whom to
produce?
Land, Labor,
Capital,
Enterprise
Opportunity Cost
the cost of the next best thing forgone
Production Possibility Curve
Capital goods/
consumer goods
Law of
diminishing
returns
Move inside
Shift
Economic
Growth
Utility
satisfaction or
pleasure gained from
an economic action
Finite source, infinite wants
Market - Allocation of resources
Demand
Supply
a want backed by the
willingness and ability to
buy at a given price
Achieving productive
efficiecy
Ceteris paribus
Move along
Shift
Income/
Substitution effects
Income
Population
Price of
complements
Price of
substitutes
Tastes and
preferences
the quantity of a good or
service producers are able
and willing to supply to a
market at a give price
Move along
Shift
Extension/ contraction
Cost of
production
New firms
entering a market
Indirect taxes and
subsidies
Price of
subsitutes
Technological
advancement
Market Equilibrium
Equilibrium exists when
Demand = Supply
Disequilibrium -
excess demand or
supply
Price Mechanism
a signal, an incentive and a
rationing device to allocate
resources in a market
Equilibrium price -
(Market clearing price)
Market Efficiency
Surpluses
Allocative Efficiency
Producer
Consumer
the extra revenue
gained by
producers
(Marginal costs)
the extra utility gained
by consumers
(Marginal benefits)
consumer wants
are satified
Elasticity
Government Intervention
Market Failure and
Government Response
PED
the responsiveness
of the quantity
demanded to a
chance in price
PES
XED
YED
Elastic - responsive
Inelastic - not responsive
Determinants of PED
Closeness of
substitues
Luxury or
necessity
Percentage of
income spent
on the good
Time period
In the long
term, demand
more elastic
Less spent,
more inelastic
Luxury - elastic
Necessity - inelastic
Close subs - elastic
Commodities - inelastic, few subs
Manufactured - elastic, many subs
responsiveness of the quantity
demanded of one good to a
change in price of another
responsiveness of the quantity
demanded to a change in the
real income of consumers
Determine Substitutes/
Complements relationship
Determine Normal/ Inferior goods
responsiveness of the
quantity supplied to a
change in price
Determinants of PES
Time Period
Level of
spare
capacity
Type of
good
Level of
stocks
Very SR - all fixed
SR - some fixed
LR - all variable
Spare = PES
E.g. Agriculture
Response
to demand
Minimum/ Maximum Prices
Price floor
(above eq point)
Price ceiling
(under eq point)
Excess supply
Excess demand
Parallel market
Shift Demand
Shift Supply
Indirect taxation
Subsidy
payments by a
government to
producers
Increase supply
Tax incidence
(Consumer/ Producer)
Depends on PED and PES
Ad valorem (% tax)
Specific (fixed amount)
Comment on Consumer/
Producer surplus, producer
revenue, government revenue
and expenditure and impact
on eq price and quantity
Externalities
Merit and Demerit Goods
Common Access Resources
and Sustainability
Public Goods
Why and how
market fails and
evaluate the
solutions
Asymmetric info
Abuse of monopoly power
Negative
Positive
Production
Consumption
the costs or benefits of
production or consumption
that are experienced by their
parties but not by the
producers and consumers
who cause them
MSC > MPC
E.g. Pollution
MSB < MPB
E.g. Cigarettes
Government Respose
Taxation
Direct Impact
e.g.Carbon tax
Disadvantages
Advantages
Difficult to
estimate the
spillover effect
Price inelastic
D or S have
little effect
Income inequality
Loss of
international
competitiveness
Creation of black market
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
Production
Consumtion
MSC < MPC
MSB > MPB
R&D in technology
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
non-excudability
non-rivalry
even if you have
paid for a good you
cannot confine its
use to yourself
the consumption of a
good does not reduce
its availability to others
"Free rider" effect
e.g. National defense
or street lamps
Merit goods
Demerit goods
consumers consume
too few goods and
services that are seen
as being good for them
e.g. Education
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
CAR - are resources that are
available to everyone without
payment, do not have a price, and
are not woned bt anyone
Sustainability
e.g. Air, biodiversity
non-excludable but rivalrous
resources are used today
in such a way that does not
compromise their use by
future generations
Requires
International
co-operation
EU emissions Trading System
Response similar to
negative externalities
Economic activities
threatens sustainability
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