IB Economics HL Definitions

Abnormal Profit

When a firm makes above the min amount of profit to stay in business. (Profit > 0 )

Absolute Advantage

When a country can produce more output with the same or fewer resources.

Accounting Cost

Explicit costs. Do not take into account opportunity cost.

Actual and Potential Growth

Actual - when there is an increase in output (real GDP). Potential - when there is an increase in the quantity and quality of the factors of production. (Shift outwards in PPC)

Ad Valorem Tax

An indirect tax that is a percentage of the price , set by the government.

Administrative Trade Barriers

Regulations or requirements that lower the level of imports into a country.

Adverse Selection

When the seller has more information about the product than the buyer due to asymmetric information in the market.

Aggregate Demand (AD)

The total spending of a good or services at a given price level in a given time period.

Aggregate Supply

The total production of goods and services at a given price level in a given time period.

Aid

The flow of capital (grants or loans) from a developed country to a developing country.

Allocative Efficiency

The optimum level of output produced that society deems efficient.

Anti-monopoly regulations

Regulations that aim to limit the power of a monopoly in the market.

Appreciation

The increase in the exchange rate in a floating exchange rate system.

Average Fixed Cost

Fixed Costs divided by the level of output.

Balance of Payments

The record of the economy's transactions with the rest of the world.

Balance of Trade

Revenue of net exports. Value of exports - value of imports.

Balanced Budget

When government spending (G) is equal to income earned by government (tax).

Barrier to Entry

Anything that prevents a firm from entering the market.

Bilateral Agreements

Trade agreements between two countries

Bilateral Aid

Non-reimbursable aid from on government to another

Break-even Output

The amount of output for which the total revenue is equal to total costs. (profit = 0 )

Budget Deficit

When government spending (G) is greater than government revenue (Tax).

Budget Surplus

When government revenue exceeds government spending.

Business Cycle

The short-run fluctuations in real GDP along the long-run trend. (series of economic expansions and contractions).

Cap and Trade Schemes

Market for pollution permits aimed a reducing pollution externalities.

Capital Account

The part of BOP that records transfers of capital between countries. (Transfers of non-produced and non-financial assets).

Capital Flows

The movement of investments into and out of the country in a given period of time. (Portfolio and FDI).

Common Access Resources

Non-excludable but rivalrous goods. It is difficult to exclude people from benefiting out of them.

Comparative Advantage

When a country can produce a good with less opportunity costs than another country.

Complementary Goods

Goods that are consumed together.

Concessional Loans

'soft loans' - longer repayment period and lower interest rates than the market rate.

Contractionary Fiscal Policy

Aims at decreasing AD by decreasing government spending or increasing taxes.

Contractionary Monetary Policy

Aims at decreasing AD by increasing interest rates.

Cost-push Inflation

Inflation that is caused by an decrease in AS. (Less output therefore higher prices).

Current Account

The sum of balance of trade, net income from abroad and net transfers.

Deflation

The persistent decrease in the average price levels in the economy.

Demand-pull Inflation

Inflation caused by an increase in AD.

Depreciation

The decrease in the exchange rate in a floating exchange rate system.

Direct Taxation

Taxation on income.

Disinflation

Prices continue to rise but a a decreasing rate.

Economic Development

The sustainable increase in living standards. (increase in income, education and health and environmental protection).

Economic Loss

When the firm is not making enough revenue to cover all the costs. (negative economic profits)

Abnormal Profit

When revenue is greater than costs.

Economies of Scale

As the firm increases in size the average total costs will decrease.

Equity

Fairness in the distribution of income.

Exchange Rate

The price of a currency expressed in terms of another.

Externalities

When the production or consumption of a good or service creates costs or benefits onto a third party.

Financial Account

Part of BOP that records the portfolio and FDI that goes in and out of the country over a period of time.

Fiscal Policy

The manipulation of government spending and taxes in order to increase or decrease AD.

Foreign Direct Investment (FDI)

The investment of a foreign company to a domestic firm which allows them to gain control over the firm they invested in.

Gini Coefficient

Measure of income inequality.

Gross Domestic Product (GDP)

The value of all final goods produced within an economy over a period of time.

Human Development Index

Measure of development that focuses on education, health and income.

Tax Burden

Who ends up paying the indirect tax. Producers or consumers.

Income, Expenditure and Output Method

Used to measure GDP

Indirect Tax

Expenditure tax imposed by the government that can be used to decrease the consumption of demerit goods.

Inflation

The persistent increase in the average price levels in an economy.

Inflationary Gap

When the economy is temporarily producing above the full employment level of output causing inflation.

Informal Market

Injections and Leakages

Interest Rate

The price or cost of borrowing money expressed as a percentage.

Marginal Benefit/cost

Market Failure

When the market forces fail to allocate resources efficiently. Over/under production/consumption of a good or service.

Marshall-Lerner Condition

Condition that states the devaluation will improve trade deficit if the sum of PED for exports and imports exceeds unity.

Price Floor/Ceiling

Price Floor - min amount producer can sell at. Price ceiling - max amount producer can sell at.

Microcredit schemes

Small loans given to the very poor in developing countries to help them start small businesses in order to meet their emergency expenses.

Monetary Policy

Manipulation of interest rates and money supply in order to increase or decrease AD.

NGOs

Organizations working independently from the government which aim at implementing development

Opportunity Cost

The next best alternative foregone when making an economic decision.

Poverty

Privatization

The transfer of state owned firms to the private sector.

Productive Efficiency

The level where the max amount of output is produced for the min. cost.

Profit Maximization

Profit Repatriation

When multinational companies send money back to their home country.

Progressive, Proportional and Regressive Taxation

Public Goods

Goods that are non-rivalrous and non-excludable

Quota

A limit on the volume or imports allowed into the country.

Tariff

A tax set by the government on imports in order to protect domestic firms from international competition.

Recession

When the economy is undergoing a decrease in real GDP over a period of time.

Relative Poverty

Resource Allocation

Specialization

When a factor or production is employed in making only one good. Leads to increased efficiency.

Specific Tax

An indirect tax that is set as a fixed amount.

Stagflation

Period of rising inflation and falling output.

Subsidy

An amount of money given by the government to firm to help them with the costs in order to encourage the production and consumption of the good.

Tacit Collusions

Terms of Trade

The ratio of export prices to import prices.

Tied Aid

Transfer Payments

Payments by the government to individuals who do not contribute to the production. (unemployment benefits)

Tragedy of the Commons

Unemployment

People who are in the labour force that are actively searching for a job but are currently unemployed.

Protectionism

Set of policies set by the government in order to protect domestic firms from outside competition.

Welfare/ dead-weight loss

Loss in producer or consumer surplus.