IB Economics: Intro Key Terms

Flashcards containing all 46 key terms and test-ready definitions from the introductory IB Economics lecture notes.

Market

Any arrangement that brings buyers and sellers together to exchange goods, services, or resources.

Choice

The act of selecting between alternatives because scarce resources cannot satisfy all wants.

Economic growth

An increase in an economy's output of goods and services over time, or an increase in its productive capacity.

Specialization from trade

The concentration of individuals, firms, or countries on producing particular goods or services, allowing them to trade for others.

Gains from trade

The benefits obtained from specialization and exchange, allowing economic agents to consume more than without trade.

Ceteris paribus

A Latin phrase meaning 'other things being equal'; used to examine the effect of changing one variable while holding other relevant variables constant.

Economics

The social science concerned with how individuals and societies make choices about allocating scarce resources to satisfy unlimited wants.

Macroeconomics

The study of the economy as a whole, including economic growth, unemployment, inflation, and national income.

Free-market economy

An economic system in which resources are allocated primarily through markets and the price mechanism, with limited government intervention.

Command (planned) economy

An economic system in which the government makes major decisions about resource allocation, including what, how, and for whom to produce.

Mixed-market economy

An economic system in which resources are allocated through both markets and government intervention.

Microeconomics

The study of the behavior and decisions of individual consumers, firms, and markets.

Normative economics

Economics involving value judgments and opinions about what ought to be, which cannot be objectively proven true or false.

Opportunity cost

The value of the next best alternative forgone when a choice is made.

Positive economics

Economics involving objective and testable statements about what is or what will be.

Rational economic decision-making

Decision-making in which economic agents weigh costs and benefits and choose the option expected to best achieve their objectives, such as maximizing utility or profit.

Trade-off

A situation in which obtaining more of one thing requires giving up some of another.

Scarcity

The fundamental economic problem that arises because resources are finite while human wants are unlimited.

Utility

The satisfaction or benefit a consumer receives from consuming a good or service.

Sustainability

Meeting present needs without compromising the ability of future generations to meet their own needs.

Equity

Fairness in the distribution of income, wealth, resources, and economic opportunities.

Economic well-being

The level of economic prosperity and quality of life experienced by individuals or society.

Efficiency

The use of scarce resources in a way that minimizes waste and maximizes output or welfare.

Free good

A good that is not scarce relative to demand and therefore has no opportunity cost.

Economic good

A good that is scarce relative to demand, meaning resources must be used to produce it and it therefore has an opportunity cost.

Basic economic questions

What should be produced? How should it be produced? For whom should it be produced?

Marginal analysis

Decision-making that involves comparing the additional benefit with the additional cost of an action.

Marginal cost

The additional cost of producing or consuming one more unit of a good or service.

Injection

An addition of spending into the circular flow of income, such as investment, government spending, or exports.

Leakages

Income withdrawn from the circular flow through savings, taxation, or imports.

Factors of production

The resources used to produce goods and services: land, labour, capital, and entrepreneurship/management.

Land

All natural resources used in production.

Labour

Human physical and mental effort used in production.

Capital

Human-made resources used to produce other goods and services, such as machinery and equipment.

Property rights

Legally recognized rights to own, use, control, and transfer property or resources.

Full employment

A situation in which the economy's available resources are being fully utilized in production; represented by a point on the PPC in the basic model.

Inefficiency

A situation in which resources are not being used to their full productive potential; represented by a point inside the PPC.

Resource market

A market in which factors of production are bought and sold; households generally supply resources and firms demand them.

Product market

A market in which final goods and services are bought and sold; firms generally supply them and households demand them.

Supply

The quantity of a good or service producers are willing and able to offer for sale at different prices during a given period, ceteris paribus.

Demand

The quantity of a good or service consumers are willing and able to buy at different prices during a given period, ceteris paribus.

Marginal benefit

The additional benefit received from consuming or producing one more unit of a good or service.

Production Possibilities Curve (PPC/PPF)

A curve showing the maximum combinations of two goods or services an economy can produce with available resources and technology when resources are fully and efficiently employed.

Constant opportunity cost

A situation in which producing each additional unit of one good requires sacrificing the same amount of another good; represented by a straight-line PPC.

Increasing opportunity cost

A situation in which producing additional units of one good requires sacrificing increasing amounts of another good because resources are not equally suited to different uses; represented by a bowed-out PPC.

Decreasing opportunity cost

A situation in which producing additional units of one good requires sacrificing progressively smaller amounts of another good.