IB ECONOMIC STUDY GUIDE

Law of Demand

As price increases, quantity demanded decreases (ceteris paribus).

Law of Supply

As price increases, quantity supplied increases (ceteris paribus).

Market Equilibrium

Where the quantity demanded equals the quantity supplied at a particular price.

Shifts vs. Movements

A shift in the curve is caused by factors like income, tastes, or prices of related goods; a movement along the curve is caused by a change in price.

Price Elasticity of Demand (PED)

A measure of how much quantity demanded responds to a change in price.

Price Elasticity of Supply (PES)

A measure of how much quantity supplied responds to a change in price.

Income Elasticity of Demand (YED)

Measures the responsiveness of demand to changes in income.

Cross-Price Elasticity of Demand (XED)

Measures the responsiveness of demand for one good to the price change of another good.

Negative Externalities

External costs, like pollution.

Positive Externalities

External benefits, like education.

Price Ceiling

A maximum price set by the government (e.g., rent controls).

Price Floor

A minimum price set by the government (e.g., minimum wage).

Subsidy

A payment by the government to producers to encourage the production or consumption of a good.

Taxation

A government-imposed charge on producers or consumers.

Gross Domestic Product (GDP)

The total value of goods and services produced in an economy within a given period.

Nominal GDP vs. Real GDP

Nominal is unadjusted for inflation, while real GDP accounts for inflation.

GDP Deflator

A measure of the price level, used to adjust nominal GDP to real GDP.

Circular Flow of Income

Illustrates the movement of money and goods in the economy between households and firms.

Types of Unemployment

Frictional, Structural, Cyclical, and Seasonal.

Inflation

The general increase in prices over time.

Demand-pull inflation

Caused by an increase in aggregate demand.

Cost-push inflation

Caused by an increase in production costs.

Fiscal Policy

Government decisions about taxation and spending to influence the economy.

Monetary Policy

Central bank actions to control the money supply and interest rates to influence the economy.

Expansionary Policy

Policies that aim to stimulate the economy.

Contractionary Policy

Policies that aim to slow down the economy.

Absolute Advantage

When a country can produce a good more efficiently than another.

Comparative Advantage

When a country can produce a good at a lower opportunity cost than another.

Floating Exchange Rates

Exchange rates determined by market forces.

Fixed Exchange Rates

Exchange rates pegged by the government to another currency or a basket of currencies.

Balance of Payments

A record of all economic transactions between a country and the rest of the world.

Economic Growth

The increase in the value of goods and services produced in an economy over time.

Human Development Index (HDI)

A composite index measuring health, education, and income.

Poverty Trap

A situation where poor countries or people remain poor because they cannot access the resources needed to improve their condition.

Trade Liberalization

The removal of barriers to trade to allow more market access and improve growth.

Debt

High levels of debt prevent developing countries from investing in growth.

Corruption

Mismanagement of resources and investment.

GDP Deflator Formula

GDP Deflator = Nominal GDP / Real GDP × 100.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services.

AD-AS Curves

Model showing shifts in aggregate demand and aggregate supply.

Phillips Curve

Illustrates the short-run and long-run trade-off between inflation and unemployment.