Introduction to Economics (part 3)

This is the final list of definitions IB requires IB Economics students to learn. This is the list of the most important terminology the IB course requires. After this post I would get onto the actual theory. If you have any questions you can always email me or leave comments to each of these bloggings. If you have any queries or suggestions about specific theory you can ask me on this blog too.

Utility is a measure of how much use and pleasure a consumer gains from consuming the good.
Total utility is the total satisfaction gained from the consumption of goods and services. An example could be the total satisfaction from consuming 4 Mars Bars.

Marginal Utility is the extra utility gained from the consumption of another unit. Example would be the amount of satisfaction gained from eating one more Mars Bar.

Negative Utility or disutility is the loss of satisfaction from the consumption of another unit. An example is when you consume your 8th Mars Bar, you would pretty much be sick of chocolate and feel extremely bad after eating it. As a consumer you are better off not consuming more.

Opportunity Cost is the next best alternative lost when an economic decision is made. (always in good/service lost NOT monetary terms)

Free goods are unlimited in supply and are not relatively scarce, because of this there is no price associated. Examples are the air, sea and wind etc. There is no opportunity cost involved in consumption of free goods. (e.g. you don’t forgo any consumption to breath air)

Economic Goods are good which have an associated opportunity cost and a price, this means that it is relatively scarce as prices are used to ration it.