IB Economics SL Definitions

Sourced from Cambridge textbook

absolute poverty

Inability of an individual to afford basic goods and services, nationally and internationally determined by the poverty line

actual growth

in the context of the PPC model, growth as a result of reduction in unemployment or improvement in efficiency. movement inside the PPC to the edge

administrative barriers

a type of trade protection countries use to prevent free flow of imports into a company. often considered hidden trade protection

aggregate demand

total quantity of goods and services that all buyers in an economy want to purchase over a period of time

aggregate supply

total quantity of goods and services produced in an economy over a period of time

allocative efficiency

an allocation of resources that results in producing the combination and quantity of goods that is mostly preferred by consumers. MSB = MSC

anti-dumping

excuse for trade protectionism where a country can accuse another of dumping and use tariffs to ‘protect’ themselves

appreciation

increase in the value of a currency in a floating exchange rate system

balance of payments

a record of all the transactions between the residents of a country and the residents if other countries, usually for a year, in the form of debits and credits

barriers to entry

anything that can prevent a firm from entering an industry and beginning production

bilateral trade agreement

any trade agreement involving two trading partners

business confidence

a measure of the degree of optimism among firms in an economy about the future performance of firms and the economy

business cycle

fluctuation in the growth of real output over a period of time

capital

one of the FoP which had to be produced itself

capital account

the inflows minus outflows for capital transfers and use of natural resources

capital flight

the large scale transfer of privately owned financial capital to another country resulting in uncertainty of holding assets

capital gains tax

a tax on profits from financial investments e.g. real estate, stocks

carbon tax

a tax per unit of carbon emissions of fossil fuels

central bank

financial institution responsible for regulating commercial banks and monetary policy

circular economy

idea that goods should be produced in a way that they can be repaired rather than thrown out

circular flow of income

flow of income in the economy where value of output = income produced from production

collective self governance

solution to the use of common pool resources where the users take control of the resources in a sustainable way. Counters the idea of the tragedy of the commons

commercial bank

a financial institution whose main function is to hold deposits for customers, make loans to customers, transfer funds and buy government bonds

common market

type of trading bloc where countries that formed a customs union eliminate all barriers between them and allow for unrestricted movement in the factors of production between them

common pool resources

resources that are not owned by anyone and have no price

complementary goods

two or more goods that are used together

composite indicator

a summary measure of more than one indicator e.g. HDI does edu, health and income

consumer confidence

a measure of the degree of optimism of consumers about their future income and the economy

consumer price index

a measure of the cost of living for the typical household, compares the value of a basket if goods and services in one year with the same basket in the base year

consumer surplus

difference between the highest prices consumers are willing to pay for a good and the price actually paid

corporate income tax

tax on profits of corporations

corporate social responsibility

the practise of some corporations to avoid socially undesirable activities

cost-push inflation

a type of inflation generated by a fall in aggregate supply as a result of increased costs of production

credit rating

an assessment of the ability of a borrower to pay back loans

current account

includes balance of trade, plus inflows minus outflows of income and current transfers

customs union

a type of trading bloc where member countries eliminate trade barriers and adopt a common policy towards all non-member countries

cyclical unemployment

a type of unemployment that occurs during the downturns of the business cycle

debt relief

the cancellation or forgiveness of all or a portion of a country’s debt

debt servicing

the payments that must be made to repay the debt

deflation

a sustained decrease in general price level

demand -pull inflation

a type of inflation caused by an increase in aggregate demand

demerit goods

goods which are considered to be undesirable for consumers

depreciation

a decrease in the value of a currency in a floating exchange rate system

deregulation

policies involving the reduction of gov regulations of the private sector

devaluation

the decrease in teh value of a currency in a fixed exchange system

development aid

foreign aid intended to help economically less developed countries

direct tax

taxes payed directly to the gov

disinflation

a fall in the RATE of inflation

diversification

a change involving greater variety

economic development

rises in the standard of living and wellbeing of population

economic growth

increases in total real output produced by a country

economic integration

the extend of economic interdependence on other nations as a result of trade agreements

entreprenuership

the ability of an individual to innovate and develop new ways of doing things

exchange rate

the rate at which one currency can be exchanged for another

export promotion

a growth strategy where a country attempts to achieve economic growth by expanding its exports

export subsidy

a payment by the gov to a producer per unit of the subsidised export good

financial account

inflows minus outflows of funds due to FDI, portfolio investment, changes in reserve assets and changes in official borrowing

fixed exchange rate

an exchange rate fixed by the central bank of that country and does not change in response to currency demand and supply

floating exchange rate

and exchange rate determined entirely by market forces

foreign aid

transfer of funds or goods to developing countries in order to bring about improvements to economic, social or political conditions

FDI

investment by firms based in one country into another

free trade area/agreement

a type of trading bloc where a group of countries eliminates tarde barriers between them

frictional unemployment

unemployment that occurs when someone is between jobs

gender inequality index

a composite indicator that measures inequalities between genders in reproductive health, empowerment and labour market participation

gini coefficient

summary measure of Lorenz curve

globalisation

economic integration on a global scale involving increasing interconnectedness

GDP

measure of the value of aggregate output within the geographical bounds of an economy produced within a year

GNI

a measure if the total income received by residents of a country over a period of time

Happiness index

measures economic wellbeing

Happy planet index

accounts for environmental sustainability and economic well-being

human capital

skills, abilities and knowledge acquired by people as well as their health

human development index

composite indicator of development whcih measures education, health and income percapita

humanitarian aid

foreign aid extended in regions where there are emergencies caused by violent conflicts or natural disasters to save lives

import substitution

where a country manufactures simple consumer goods to promote domestic industry instead of importing

income effect

as price falls, real income increases causing teh consumer to buy more of the good

income elasticity of demand

measure of the responsiveness of demand to changes in income

indirect taxes

taxes levied on the spending to buy goods

Inequality adjusted HDI

composite indicator with adjusted HDI dimension for inequality

infant industry

a new domestic industry that has not had time to establish itself and achieve efficiencies in production and therefore cannot compete

inferior good

a good for which the demand varies negatively with income, as income decreases, demand increases

inflation

a sustained increase in the price level

inflation targeting

type of monetary policy which focuses on achieving a particular inflation target

inflationary gap

real GDP > potential GDP

informal economy

economy where economic activities are unregistered and unrecorded

interest

a payment per unit of time for the use of borrowed money

international monetary fund

international financial institution which makes short term loans to governments to alleviate debt, stabilise exchange rates etc..

joint supply

the production of two or more goods that are derived from a single product, making one without the other is impossible, e.g. milk and butter

labour union

an association of workers in a particular profession, whose objective is to improve working conditions and defend rights of workers

land rights

a group of property rights that refer to the rights and rules to posses, occupy and use land

law of diminishing marginal returns

as more and more units of a variable input is added to one of more fixed input of production, the marginal product at first increases and then begins to decrease

law of diminishing marginal utility

as the consumption of a goods increases, the marginal utility the consumer recieves, decreases with each additional unit consumed, therefore consumers will only buy more if the price falls

long run (macro)

period of time when prices of resources especially wages change along with changes in the price level

long run (micro)

time period in which all inputs can be changed, there are no fixed inputs

long-term growth trend

in the business cycle diagram, refers to the line that runs through the business cycle, reoresenting average growth over long periods of time

lorenz curve

curve illustrating a degree of equality of income distribution in an economy

luxury goods

goods that are not necessary or essential. they have a PED > 1 and YED > 1

managed exchange rates

exchange rates that are for the most part free to float to their market levels. However over long periods of time central banks periodically intervene to stabilise the exchange rate in the long run

market

any arrangement where buyers and sellers of a particular good, service or resource are linked together to make an exchange

market failure

occurs when the market fails to allocate resources efficiently or to provide the quantity and combination of goods and services mostly wanted by society

merit goods

goods that are desirable for consumers but under provided by the market