IB Economics 3.1

Scarcity

the principle dictating a society's unlimited wants will exceed the limited resources available to fulfill those wants

Economics

the study of how society manages its scarce resources

Cost of opportunity

the second best alternative renounced by making a choice

Rationality

the quality of being caused by past occurrances

Assumption of rationality

the assumption that people will make choices in their own self-interest, choosing things that provide the greatest personal benefit and foregoing those that aren't as personally valuable and compelling; also called the theory of rational behavior

Correlation

a relationship between two variables, in which they both increase and decrease under the same conditions.

Causation

a relationship between two variables, one defined as the cause of the other

Homo economicus

a hypothetical model of a person, perfectly rational, self-interested and with complete information

Ceteris Paribus

Latin for "all other things held constant"

Microeconomics

branch of economics studying the behavior of individual agents and specific markets. households and firms make decisions.

Macroeconomics

branch of economics that focuses on broad aggregates such as overall production, employment, prices. economy wide phenomena

Allocative efficiency

the property of society satisfying the most needs & wants it can from its scarce resources

Choice

the act of selecting among alternatives

Equity

fairness so that all members of a population have the same opportunities

Economic sustainability

the ability of an economy to support a defined level of economic production without compromising the well-being of contemporary or future generations

Intervention

government-led market regulation, including fiscal and monetary policies

Fiscal policies

economic policies involving public spending (which create jobs, stimulating the economy) and taxing (seen in direct taxing, taken from income, and indirect taxing, such as sales tax). In Mexico, this is overseen by the "hacienda".

Monetary policies

economic policies involving the offer of money (controlling the amount of money in a society by printing or devaluing currency) and interest rates

Interest

a sum paid for borrowing money. It being high discourages spending, thereby lowering inflation; conversely, it being low encourages spending, thereby increasing inflation.

Well-being

satisfaction defined by physical, mental, social and fiscal health. A high cost of opportunity damages an agent's well-being

Interdependence

the dependence of two or more people or things on each other.

The efficiency dilemma

phenomena in which improvements in efficiency do not lead to fewer resources consumed, which has repercussions in sustainability and human rights

Factors of production

the resources needed to produce economic goods: land, labor, capital, entrepreneurship

Capital

artificial resources, such as machinery, roads and tools

Land

natural resources, such as physical space and the water, minerals, ecosystems etc it encompasses

Specialized labour

production model, parented by Adam Smith (pin factory) and David Ricardo (cloth and wine) in which specialization increases productivity

Merit goods

goods or services beneficial for people but that are under-provided by the market (artificial scarcity increasing demand) and so under-consumed

Economic system

the method used by a society to produce and distribute goods and services, answering three key economic questions in production: WHAT?, HOW? and TO WHOM?

Neoliberalism

an economic and political worldview that sees the free market as the main mechanism for ensuring economic growth, with a severely restricted role for government, valuing competition and efficiency.