Class notes
IB Economics SL Microeconomics notes
- Course
- Institution
This document is a summary of what you need to know on Microeconomics for your IB Economics SL exam. These notes are accurate to the course on the DP.
[Show more]
Seller
Follow
aurelienlions
Content preview
MicroeconomicsChapter 1
Four factors of production: land, labour, capital, and entrepreneurship.
The term capital concerns physical capital, human capital (all the skills and abilities of the workers),
the natural capital (or environmental capital: expanded meaning of the land factor of production), the
financial capital (financial instruments, such as a stocks and bonds) and the institutional capital (all
the public investments in infrastructures).
Opportunity cost of producing a unit of good A (in relation with the production of good B): Cost good
B per unit/ cost good A per unit; the opportunity cost of producing each unit of good A is x units of
good B.
The production possibilities curve (PPC) represents all combinations of the maximum amounts of two
goods that can be produced by an economy given its resources and technology when there are full
employment of resources and productive efficiency (avoiding wasting).
Chapter 2
Production and productivity can be increased by the specialisation and division of labour. Labour
theory value (The price of a good is the sum of the price of all the labour required to produce it).
Thomas Malthus claimed increasing wages would increase population, leading to misery and
readjustment to the original population.
Supply and demand are ruled by the price mechanism (system of price determination and allocation
of goods in a free market). Market equilibrium avoids all wastes and shortages, reached when
consumers and producers make the right choices in terms of utility.
From a Keynesian pov, demand drives employment. Keynesian believe government should intervene
in the economy to alleviate sever unemployment (by increasing demand: by decreasing interest rates,
increasing purchasing power and consumer confidence).
Reagan in the US and Thatcher in the UK dismantled most of the Keynesian legacy, replacing it with
Monetarism (thinking that government should focus on maintaining price stability, and that any
intervention was likely to cause inflation).
Laffer curve shows counterproductive tax policies.
Circular economy is when the product responsibility remains on the producer, and the consumers
returns the product once its consumption is done, alleviating the effects on the environment.
Chapter 3
Competitive markets allow for many buyers and sellers, opposed to the notion of market power
(monopoly power), where one stakeholder has a large dominance on the market.
The demand of an individual actor consumer indicates the various quantities of a good or service the
consumer is willing and able to buy at different prices during a particular period, ceteris paribus.
There is a negative correlation between demand and price. D=MB
, Market demand is the sum of all the individual demands. Non-price determinants of demand
influence demand. Ex: quality of the product, fashion.
Types of goods:
- Normal goods
- Inferior goods (Cheaper variation of the good)
- Substitute goods (Coke and Pepsi)
- Complementary goods (Tennis balls and rackets)
- Unrelated goods (Wood and pencils)
A change in a price determinant of demand leads to movement along the curve (change in quantity
demanded), while a change in a non-price determinant leads to a shift of the curve (change in
demand).
Chapter 4
Elasticity refers to the impact a change in price has over the demand. If demand is strongly affected, it
is elastic. If demand is weakly affected, it is inelastic. PED is the price elasticity of demand.
PED is the change in demand for 1 good when its
price changes, XED is the change in demand for one
good after a change in price of another one.
The formula of the PED is the absolute value of the
percentage change in quantity demanded divided
by the percentage change in price.
Examples of goods with inelastic PED are vital
medicines such as insulin for diabetic people.
When demand is inelastic, an increase in price
causes an increase in total revenue of the firm,
while decrease in price causes a fall in total
revenue.
When a demand is elastic, an increase in price
causes a fall in total revenue while a decrease in
price causes a rise in total revenue.
Increasing the price of inelastic goods is frequently
done by sellers, even if it can be unethical in some
conditions.
The lower the price elasticity of demand for the
taxed good the greater the governmental tax revenues (e.g. Tabaco, Oil …).
XED for two goods is positive when the demand for one good and the price of another good change
in the same direction (if price of good “A” increases and quantity demanded of good Y increases too).
This occurs when both goods are substitutes. The larger the XED is, the higher degree of
substitutability is.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller aurelienlions. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.31. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
66579 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now