Unit 1 Glossary: Evolution of Economics

Terms Definition

Unit 2 Glossary: Microeconomics

Terms Definition
Demand The quantity of the product the customers are willing and able to
buy at a particular price within a certain time period. Demand is
based on needs and wants. The law of demand states that as the
price of a product rises, the quantity demanded will usually
decrease and vice versa.

Supply Supply is the quantity of the product producers are willing and
able to produce at a particular price within a certain time period.
The law of supply states that as the price of a product rises, the
quantity supplied will usually increase and vice versa.

Subsidies The amount of money per unit of output paid by the government to
a firm to reduce their production costs.
Indirect Tax A tax on expenditure (not goods and services) that shift supply
and is imposed by the government. Aim of imposing indirect taxes:
1. To raise tax revenues → Government spending
2. Internalize externalities → Achieve a socially optimal
level of output

Ad Valorem Tax With value, a percentage tax like VAT. Also imposed by the
government. This is where the tax is a percentage of the selling
price. The gap between S & S+tax gets bigger

Quota Limit to the physical quantity of a product imposed by the

government

Maximum Price Limit on a price set by the government below the market
equilibrium. (Product cannot be sold for more.) ->creates excess
demand

Minimum Price Limit on a price set by the government above the market
equilibrium. (Product cannot be sold for lower.) -> creates excess
supply

Consumer Extra satisfaction a consumer gets resulting from the fact that they
Surplus can afford a product at a higher price than the market equilibrium
price.

Producer surplus Extra satisfaction a producer gets resulting from the fact that they
can afford to sell their product at a higher price than needed.

MSC Cost of one additional unit produced to the whole society

MPC Cost of one additional unit produced to the company

External cost The cost incurred by an individual, firm, or community as a result

of an economic transaction in which they are not directly involved.
The negative externality of production includes all external costs
to third parties who are not involved in this economic activity.

Fundamental People have unlimited wants but there are limited resources to
economic meet those wants. Therefore one has to answer three questions:
problem -What to produce?
-How to produce?
-For whom to produce?

HL only Terms Definition

Unit 3 Glossary: Macroeconomics

Terms Definition

Aggregate The sum of all expenditure in the economy over a period of time
Demand Consumer Expenditure + Investment Spending (in equipment &
machinery) + Government expenditure + (eXports - iMports)
● (X - M): Difference between spending on imports and
receipts from exports (balance of payments)

HL only Terms Definition

Unit 4 Glossary: Global Economics

Terms Definition

HL only Terms Definition