ib economics : all glossary terms ★

taken from the kognity book.

A beggar-thy-neighbour policy.

A beggar-thy-neighbour approach to trade policy is where one country attempts to grow its economy, while harming its neighbors or trade partners.

Abnormal profit.

When total revenue exceeds economic cost, a firm is said to be earning abnormal profits.

Absolute advantage.

A country has absolute advantage in the production of goods which it produces more efficiently than the rest of the world.

Absolute poverty.

Absolute poverty refers to people earning below internationally defined levels of income, currently USD 1.90 per day.

Actual growth.

When an economy produces a greater amount of goods and services in one period of time than in a previous one.

Actual output.

The total amount of goods and services that an economy is producing at a certain moment in time.

Administrative barriers.

Administrative barriers are non-tariff barriers designed to stop or slow imports.

Adult literacy rate.

A measure of the percentage of the population older than 15 years that is literate at a specific moment in time.

Ad valorem tax.

Ad valorem tax is an indirect tax that adds a percentage of the price to the sale of the good, such as 5%.

Adverse selection.

A situation in which one participant has more information before the transaction occurs.

Aggregate demand (AD).

AD is the total value of goods and services demanded by different groups at a given price level in an economy. It is the sum of the expenditure categories that make up GDP at a specific price level.

Aggregate supply (AS).

AS refers to the total output that all firms in a country are able to produce at any given price level.

Aid.

Assistance given to a country that would not have been provided through normal market forces.

Allocative efficiency.

Producing the optimal combination of goods from a society's point of view; achieved when the economy is allocating resources so that no one can be better off without making somebody else worse off.

Allocative inefficiency.

A situation in which community surplus is not maximised.

Allocatively efficient.

A situation where the market allocates resources at the socially optimal level of output.

Allocatively inefficient.

A situation where a market produces a level of output that is not socially optimal; where marginal social cost is not equal to marginal social benefit or MC is not equal to AR (P).

Anchoring.

A strategy that people use to make guesses about things they do not know, by thinking about things they do know and then making an adjustment.

Anthropocene.

The current geological age, in which human activity is the dominant influence on climate and the environment.

Appreciation.

An appreciation occurs when the forces of demand and supply increase the price of a currency. The currency becomes worth more in terms of other currencies.

Apprenticeship.

An apprenticeship scheme is a heavily regulated government programme to provide job opportunities and training for young people. A young person is employed by a firm, perhaps as a mechanic or hairdresser, as an apprentice. The firm benefits as they employ the young worker at a discounted wage. In addition, the government provides specialist training at trade schools at zero cost. After a period of 3 to 4 years, the apprentice graduates. The apprentice is now a qualified tradesperson and free to work for other firms in the industry at a much higher wage.

Appropriate technology.

Technology that is (usually) small-scale, energy efficient and environmentally friendly, locally autonomous, labour-intensive and affordable.

Asymmetric information.

When one party in a transaction has more information than the other party.

Auditing.

An official financial inspection of a company or its accounts.

Austerity.

Austerity is a government program aimed at decreasing government debt. The government decreases government spending and raises taxes to move closer to a balanced budget.

Automatic stabilisers.

Automatic stabilisers offset fluctuations in the business cycle without direct intervention by policy makers.

Availability heuristic.

A mental shortcut that relies on immediate examples that come to a given person's mind when evaluating a specific topic, concept, method or decision.

Average cost.

Average cost is the cost per unit of output.

Average product.

Average product is the output per worker.

Average revenue.

Average revenue is the revenue per unit, or the selling price.

Average tax rate.

The share of income that an individual pays in taxes. Average tax rates are usually much lower than marginal tax rates.

Bailout.

Financial support provided to firms or even a country facing bankruptcy.

Balance of payments.

A record of transactions in trade, income, transfers and capital flows between one country and the rest of the world over a given period of time. The three main components of the balance of payments are the current account, the capital account and the financial account.

Balance of trade.

A measure of the difference between the total value of exports minus the total value of imports over a period of time.

Balance of trade in goods.

This is the visible balance and refers to the difference between physical exports and physical imports.

Balance of trade in services.

This is the invisible balance consisting of the balance of trade of services, such as tourism, flights, etc.

Bankruptcy.

A legal proceeding that occurs when a person or business is unable to repay their outstanding debts.

Barter,.

The exchange of goods or services for other goods or services without using money.

Base-eroding and profit-shifting (BEPS).

A situation where a business uses tax exemptions and loopholes or shifts its profits to low- or no-tax jurisdictions to avoid tax.

Behavioural economics.

A branch in economic theory that incorporates the study of psychology into the analysis of the decision-making behind an economic outcome, such as the factors leading up to a consumer buying one product instead of another.

Big Mac index.

An index published by The Economist magazine to informally measure the purchasing power parity among countries, by comparing the equivalent prices of a Big Mac in relation to the different exchange rates.

Bilateral trade agreement.

A preferential trade agreement (PTA) related to the reduction or removal of trade barriers for specific goods or services between the participating countries.

Biocapacity.

Earth’s bioproductive land and sea, which includes forests, cropland, pastures and fisheries.

Biodiversity.

The variety of plant and animal life in the world or in a particular region of the world.

Biosphere.

The regions of Earth’s surface and atmosphere occupied by living organisms.

Black market.

Also called parallel markets, can be a consequence of price ceilings when there are people who are willing and able to pay higher prices than the legally set maximum price.

Bonds.

The central bank may issue bonds to raise funds to finance a range of projects from infrastructure to war. After a predetermined period of time, the government would repay the loan, including interest.

Boom.

An economy is in a boom at the peak of the business cycle. At the peak, consumer and producer confidence is high. The economy is growing, and unemployment is falling.

Bounded rationality.

The idea that human rationality is limited in predictable ways.

Bounded self-control.

The idea that human beings have some self-control, but that it is limited.

Bounded selfishness.

The idea that human beings, while somewhat selfish, also act as conditional cooperators.

Breaking even.

When total revenue is equal to total costs, and the firm makes no abnormal profit.

Budget deficit.

A budget deficit arises when government expenditure is greater than tax revenue.

Budget surplus.

A budget surplus arises when tax revenue is greater than government expenditure.

Burden.

The burden or incidence of tax refers to who pays the tax. Taxes that are regressive, such as most service taxes and value added taxes on consumption goods, are felt more by the poor than by the rich.

Bureaucracy.

Excessively complicated administrative procedure.

Business cycle.

The boom–bust cyclical nature of the economy.

Bust.

An economy is in a bust at the bottom of the business cycle. In a bust, consumer and producer confidence is low. The economy is stagnant, and unemployment is at a peak.

Buy National campaign.

A campaign encouraging consumers to buy goods produced domestically instead of those imported from abroad. The purpose of a ‘Buy National’ campaign is to utilise patriotic feelings to encourage consumers to support the nation’s economy by purchasing local goods.

By-product.

A secondary product made during the production of something else.

Cantril ladder.

A scale to measure subjective well-being, where a person places their well-being on an imaginary ladder with 10 rungs, with 10 being the highest level of well-being.

Capital.

The physical capital stock used to produce goods and services. It includes all manufactured (human-made) resources, such as machines, factories, roads and tools. Physical capital is also referred to as capital goods or investment goods.

Capital account.

A record of all the transfers of ownership of capital and other assets between countries. The capital and financial accounts record transactions in income-producing assets. The income earned from the assets is recorded in the current account.

Capital account surplus.

A surplus on the capital account arises when the money flowing in from the ownership of capital and other assets is greater than the money flowing overseas.

Capital controls.

Limits on the amount of money that can be brought into or out of a country; often used to reduce capital flight.

Capital expenditure.

Capital expenditure includes all building of infrastructure financed by the government, including roads, etc.

Capital flight.

An outflow of funds from a country, often due to negative changes in the economic, political, or social conditions.

Capital gains.

Capital gains refer to the profit a firm makes from selling an asset. For example, if a firm owns a factory and finds it outgrows the building, and sells at a profit, it makes a capital gain.

Capital goods.

The tools and machinery necessary for the production of other goods. They are what we call the ’capital’ factor of production.

Capitalism.

An economic system based on the private ownership of the means of production and their operation for profit. Characteristics central to capitalism include private property, capital accumulation, wage labour, voluntary exchange, a price system and competitive markets.

Capitalist systems.

Economic systems in which private individuals or businesses own capital goods, and it is based on the supply of goods and services in a free market.

Capital transfers.

A capital transfer is a transaction relating to the transfers of ownership of fixed assets, transfers of funds linked to the buying and selling of fixed assets, or debt forgiveness.

Carbon tax.

A carbon tax is a method of reducing the levels of carbon dioxide emitted from burning fossil fuels. The level of tax varies according to the amount of carbon each type of fossil fuel contains; fuels that contain more carbon are taxed at a higher rate than fuels that contain less.

Cartel.

A group of stakeholders in the market, usually businesses, who collude to improve their profits and dominate the market.

Caste discrimintation / discrimination based on work and descent (DWD).

A form of discrimination that divides populations into hierarchical groups, based on birth; found predominently in South Asia.

Central bank.

An independent national authority responsible for the monetary system. The central bank determines monetary policy by controlling the money supply and interest rate.

Centrally planned economy.

A rationing system where all economic decisions are taken at the centre by the government. There is no private property; all resources are owned by the state. Also called ‘command economy’.

Ceteris paribus.

The Latin expression for ‘everything else being equal’. It means that all other variables, except the one that you are studying, are assumed to be fixed or unchanged.

Change.

The process or act of becoming different.

Child labour.

Work that deprives children of their potential and their dignity, and that is harmful to mental and physical development.

Chloropleth map.

A choropleth map is a map which uses differences in shading, colouring, or the placing of symbols to indicate differences in areas with respect to some variable.

Choice.

An act of selecting between two or more possibilities; choice is necessary when scarcity requires decisions about how to use resources to meet needs and wants.

Choice architecture.

The way choices are structured for consumers.

Circular economy.

A new way in which the flow of resources and goods in an economy works in contrast to the linear economy. It is based on the principles of ‘designing out’ waste and pollution, keeping products and materials in use, and regenerating natural systems, with the intention of making economic growth sustainable and preserving the environment.

Circular flow of income.

A model that illustrates the interactions between economic agents in an economy. It shows how factors of production, goods and income flow between households, firms, government, the financial sector and the foreign sector.

Civil law system.

A legal system based on comprehensive and regularly updated legal codes.

Close complements.

Goods that are usually consumed together, such that one good has little use without the other.

Close substitutes.

Goods that have very similar characteristics and uses to consumers so that they switch between them easily.

Club goods.

Club goods are excludable but non-rivalrous. An example is a movie theatre or toll highway.

Cognitive bias.

A way that human thinking and decision-making deviates from rationality.

Collateral.

Something pledged as security for the repayment of a loan, which will be forfeited in the event of a default.

Collective learning.

The ability to preserve information, share it with one another, and pass it to the next generation. It is a source of increasing complexity.

Collective self-governance.

Collective self-governance refers to the participation of industries in the measures planned and taken to resolve environmental sustainability issues.

Collusion.

Collusion occurs when firms work together to fix prices and/or output. This is illegal in most countries.

Collusive oligopoly.

A collusion of businesses that operates essestially like a monopoly.

Command economy.

A rationing system where all economic decisions are taken at the centre by the government. There is no private property; all resources are owned by the state. Also called 'centrally planned economy'.

Commercial banks.

Banks which have the power to create money through credit. When individuals deposit money into a bank account, the bank is only required to keep a small percentage of the deposit as cash. The commercial bank lends out the rest for a profit.

Commodity.

A commodity is a primary good, and is an important input to production. Oil, iron ore and timber are all examples of commodities.

Common Agricultural Policy (CAP).

Common Agricultural Policy refers to a policy framework implemented across the EU to support the farming industry through subsidies and other direct payments.

Common law system.

A legal system with legal codes, but which also relies heavily on precedents from judicial rulings to define the law.