The Complete Glossary | All IB Economics Terms & Concepts

Absolute advantage

This is where a country is able to produce more output than other countries using the same input of factors of production.

Absolute poverty

measured in terms of the basic need for survival. It is the amount of income a person needs to have in order to stay alive.

Actual growth

This occurs when previously unemployed factors of production are brought in to use. It is represented by a movement from a point within a PPC to a new point nearer to the PPC.

asymetric information

This is where one party in an economic transaction has access to more or better information than the other party.

Aggregate demand

The total spending in an economy consisting of consumption, investment, government expenditure and net exports.

Aggregate demand curve

A curve showing the relationship between the average price level and real GDP.

Aggregate supply (AS)

The total amount of domestic goods and services supplied by businesses and the government, including both consumer goods and capital goods.

Allocative efficiency

The level of output where marginal cost is equal to average revenue. The firm sells the last unit it produces at the amount that it cost to make it. The socially optimum level of output.

Allocative inefficiency

This occurs where the marginal social cost of producing a good is not equal to the marginal social benefit of the good to society.

Appreciation

An increase in the value of one currency in terms of another currency in a floating exchange rate system.

Appropriate technology

Technology that caters to the particular economic, social, and environmental

characteristics of its users.

Automatic stabilizers

The features of government fiscal policy (for example, unemployment benefits and direct tax revenues) that automatically counter-balance fluctuations in economic activity. For example, government spending on unemployment benefits automatically rise and direct tax revenues automatically fall when economy activity is slow.

Average tax rate

The proportion of a person's income that is paid in tax, usually expressed as a percentage.

Balance of payments

It is a record of the value of all the transactions between the residents of a country with the residents of all other countries over a given period of time.

Balance of trade in goods

A measure of the revenue received from the exports of tangible (physical) goods minus the expenditure on the imports of tangible goods over a given period of time.

Balance of trade in services

A measure of the revenue received from the exports of services minus the expenditure on the imports of services over a given period of time.

Budget deficit

A situation that exists when planned

government spending exceeds planned government revenue.

Business confidence

An economic indicator that measures the degree of optimism that business managers feel about the state of the economy and the prospects of their companies/ organizations.

Business cycle

A diagram showing the periodic/cyclical fluctuations in economic activity.

Capital

The factor of production that comes from investment. the stock of manufactured resources (e.g. factories, roads,

tools) and human capital is the value of the

workforce (improved through education or

better health care).

Capital account

A measure of the buying and selling of assets between countries. The assets are often separated to show assets that represent ownership and assets that represent lending.

Capital flight

This occurs when money and other assets flow out of a country to seek a "safe haven" in another country.

Capital transfers

A measure of net monetary movements gained or lost through actions such as the transfer of goods and financial assets by migrants entering or leaving the country, transfers relating to the sale of fixed assets, gift taxes, inheritance taxes, and death duties.

Central bank

The government's bank. The institution that is responsible for an economy's monetary policy.

Ceteris paribus

A Latin expression meaning "other things being equal".

Circular flow of income

A simplified model of the economy that shows the flow of money through the economy.

Common access resources

Natural resources over which there is no established private ownership—they are non-excludable, but rivalrous.

Common market

A customs union with common policies on product regulation, and free movement of goods, services, capital, and labour.

Comparative advantage

This is where a country is able to produce a good at a lower opportunity cost of resources than another country.

Competitive supply

This exists where products are produced by the same factors of production, and so compete for these resources for their production.

Complements

Goods are used in combination with each other. For example, digital cameras and memory cards.

Consumer confidence

An economic indicator that measures the degree of optimism that consumers feel about the state of the economy and their own personal financial situation.

Consumer price index (CPI)

A measure of the average rate of inflation which calculates the change in the price of a representative basket of goods and services purchased by the "average" consumer.

Consumer surplus

The additional benefit/utility received by consumers by paying a price that is lower than they are willing to pay.

Consumption (C)

Spending by households on consumer goods and services over a period of time.

Contractionary monetary policy

A monetary policy designed to decrease aggregate demand and thus the level of economic activity.

Cost-push inflation

Inflation that is caused by an increase in the costs of production in an economy, i.e. a shift of the SRAS curve to the left.

Crowding out

A situation where the government spends more than it receives in revenue and needs to borrow money, forcing up interest rates and making private investment and private consumption harder to come by.

Current account

A measure of the flow of funds from trade in goods and services, plus net investment income flows (profit, interest, and dividends) and net transfers of money (foreign aid, grants, and remittances).

Current account deficit

This is where revenue from the exports of goods and services and income flows is less than the expenditure on the import of goods and services and income flows in a given year

Current account surplus

This is where the revenue from the export of goods and services and income flows is greater than the expenditure on the import of goods and services and income flows in a given year.

Current transfers

These are recorded in the balance of payments whenever an economy receives goods, services, income, or financial items without something in return.

Customs union

An agreement made between countries, where the countries agree to trade freely among themselves, and they also agree to adopt common external barriers

Cyclical (demand-deficient) unemployment

Disequilibrium unemployment that exists when there is insufficient demand in the economy and wages do not fall to compensate for this.

Debt relief (cancellation)

The act of eliminating the debt owed by an economically least developed country in order to allow it to achieve development objectives.

Deflation

A persistent fall in the average level of prices in an economy.

Deflationary/recessionary gap

The situation where total spending (aggregate demand) is less than the full employment level of output, thus causing unemployment.

Demand

The willingness and ability of consumers to purchase a quantity of a good or service.

Demand curve

This shows the relationship between the price of a good or service and the quantity demanded. It is normally downward sloping.

Demand-pull inflation

Inflation that is caused by increasing aggregate demand in an economy, i.e. a shift of the AD curve to the right.

Demerit goods

Goods or services considered to be harmful to people that would be over-provided by the market and so over-consumed.

Depreciation

A fall in the value of one currency in terms of another currency in a floating exchange rate system.

Deregulation

A type of supply-side policy where the

government reduces the number or type of regulations governing the behaviour of firms.

Devaluation

A decrease in the value of a currency in a fixed exchange rate system.

Development aid

Aid that consists of grants, concessional long term loans, project aid, and programme aid.

Disinflation

A fall in the rate of inflation.

Disposable income

The remaining income available for an

individual to spend or save, after taxation.

Dumping

It is the selling of a good in another country at a price below its unit cost of production.

Economic development

A broad concept involving improvement in standards of living, reduction in poverty, improved health and education along with increased freedom and economic choice.

Economic growth

The growth of the real value of output in an economy over time. Usually measured as growth in real GDP.

Economic well-being

A multi-dimensional concept relating to the level of prosperity and quality of living standards in a country.

Economics

the science that studies human behaviour as a relationship between ends and scarce resources which have alternative uses". Lionel Robbins (1932)

Economies of scale

Unit cost advantages that a business may experience as an outcome of increasing its scale of operations.

Efficiency

Efficiency is a quantifiable concept, determined by the ratio of useful output to total input.

Elasticity

A measure of the responsiveness of something to a change in one of its determinants.

Elasticity of demand for exports

A measure of the responsiveness of the quantity demanded of exports when there is a change in the price of exports.

Elasticity of demand for imports

A measure of the responsiveness of the quantity demanded of imports when there is a change in the price of imports.

Engel curve

A curve showing the relationship between income and quantity demanded.

Entrepreneurship

The factor of production involving organising and risk-taking.

Equilibrium

A state of rest, self-perpetuating in the absence of any outside disturbance.

Equity

The concept or idea of fairness.

Excess demand

This occurs where the price of a good is lower than the equilibrium price, such that the quantity demanded is greater than the quantity supplied.

Exchange rate

The value of one currency expressed in term of another, for example, €1 = US$1.5.

Expansionary monetary policy

A monetary policy designed to increase aggregate demand and thus the level of economic activity.

Expenditure switching

Policies implemented by the government that attempt to switch the expenditure of domestic consumers away from imports towards domestically produced goods and services.

Export promotion

Strategies based on openness and increased international trade. Growth is achieved by concentrating on increasing exports, and export revenue, as a leading factor in the AD of the economy.

Export revenue

Value of exports earned by producers

Exports

Goods and services produced in one country and purchased by consumers in another country.

External balance

The value of exports of goods and services minus the value of imports of goods and services.

Externalities

External costs or benefits to a third party, when a good or service is produced or consumed.

Factors of production

The four resources that allow an economy to produce its output

Fairtrade

A scheme where products from producers in economically least developed countries can be certified

Financial account

A measure of the net change in foreign ownership of domestic financial assets.

Firms

represent the productive units in the economy that turn the factors of production into goods and services.

Fiscal policy

A demand-side policy using changes in government spending and/or direct taxation to achieve economic objectives relating to inflation and unemployment.

Fixed exchange rate

An exchange rate regime where the value of a currency is fixed, or pegged, to the value of another currency, or to the average value of a selection of currencies, or to the value of some other commodity, such as gold.

Floating exchange rate

An exchange rate regime where the value of a currency is allowed to be determined solely by the demand for, and supply of, the currency on the foreign exchange market.

Foreign aid

The international transfer of capital, goods, or services from a country, or international organization, for the benefit of a recipient country and its population.

Foreign direct investment

A long-term investment by a multinational corporation in a foreign country, (where the foreign investor owns more than 10% of the domestic company).

Foreign sector

The segment of the circular flow of income that includes exports and imports.

Framing

This is the way that choices are described and presented.

Free goods

The few things, such as air and salt water, that are not limited in supply (relatively scarce) and so do not have an opportunity cost.

Free market economy

An economy where the means of production are privately held by individuals and firms. Demand and supply (market forces) determine what/ how much to produce, how to produce, and for whom to produce.

Free trade

International trade that takes place without any barriers, such as tariffs, quotas, or subsidies.

Free trade agreement

An agreement made between countries, where the countries agree to trade freely among themselves, but are able to trade with countries outside the free trade area in whatever way they wish.

Frictional unemployment

Equilibrium unemployment that exists when people have left a job and are in the process of searching for another job.

Full employment level of output

The level of output that is produced by the economy when there is only natural unemployment.

Gini coefficient

A coefficient (index) that measures the ratio of the area between a Lorenz curve and the line of absolute equality to the total area under the line of equality.

Government debt

The total outstanding borrowing of

a government, made up of internal debt (owing to national creditors) and external debt (owing to foreign creditors).

Government spending

Spending by governments on goods and services.