IB SL economics definitions

(Price) elastic demand

This is where a change in the price of a good or service leads to a proportionally larger change in the quantity demanded of the good or service. (PED would be greater than one.)

(Price) elastic supply

This is where a change in the price of a good or service leads to a proportionally larger change in the quantity supplied of the good or service. (PES would be greater than one.)

(Price) inelastic demand

This is where a change in the price of a good or service leads to a proportionally smaller change in the quantity demanded of the good or service. (PED would be less than one.)

(Price) inelastic supply

This is where a change in the price of a good or service leads to a proportionally smaller change in the quantity supplied of the good or service. (PES would be less than one.)

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

Absolute poverty is 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.

Administrative barriers

Trade barriers in the form of regulations that aim to limit imports into a country. These barriers may take the form of product safety standards, sanitary standards or pollution standards but may also include more stringent than necessary application of customs procedures.

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.

aggregate supply curve

A curve showing the planned level of output that domestic firms are willing and able to offer at different average price levels.

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. In different words, it occurs where the marginal cost of producing a good (including any external costs) is not equal to the price that is charged to consumers.

Anti-dumping

Typically refers to tariffs that aim at raising the artificially low price of a dumped imported good to the level of the higher domestic price. A dumped good is one that is exported at a price below the cost of producing it.

Anti-monopoly regulation

Policies that are intended to regulate the market share of an individual company in order to enforce competition

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.

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.

Behavioural economics

This is a branch of economic research that adds elements of psychology to traditional models in an attempt to better understand decision-making by economic actors. It challenges the assumption that actors will always make rational choices with the aim of maximising utility.

Bilateral trade agreement

An agreement between two countries to phase-out or eliminate trade related barriers.

Budget deficit

A situation that exists when planned government spending exceeds planned government revenue. A government may "run a budget deficit" in order to increase aggregate demand in the economy.

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. The business cycle shows that economies typically move through a pattern of economic growth with the phases: recovery, boom, slowdown, recession.

Business tax

Tax levied on the income of a business or corporation.

Capital

The factor of production that comes from investment in physical capital and human capital. Physical capital is 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 gains tax

A tax on the profits realised from the sale of financial assets such as stocks or bonds

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.

Carbon (emissions) taxes

Taxes levied on the carbon contents of fuel.

Central bank

An institution charged with conducting monetary and exchange rate policy, regulating behaviour of commercial banks, and providing banking services to the government and commercial banks.

Ceteris paribus

A Latin expression meaning "other things being equal".

Circular economy

An economic system that looks beyond the linear take-make-dispose model and aims to redefine growth, focusing on society-wide benefits. It is based on three principles: design out waste, keep products and materials in use, and regenerate natural systems.

Circular Economy

An economic system that looks beyond the linear take-make-dispose model and aims to redefine growth, focusing on society-wide benefits. It is based on three principles: design out waste, keep products and materials in use, and regenerate natural systems.

Circular flow of income

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

Collective self governance

In the case of a common pool resource, such as a fishery, users solve the problem of overuse by devising rules concerning the obligations of the users, the monitoring of the use of the resource, penalties of abuse, and conflict resolution.

Common Market

When a group of countries agree not only to free trade of goods and services but also to free movement of capital and labour.

Common pool resources

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

competitive market

A market with many firms acting independently where no firm has the ability to control the price.

competitive market equilibrium

Occurs if in a free competitive market, quantity demanded is equal to quantity supplied.

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.

Composite indicator

An indicator that is comprised as an average of more than one economic variable, for example, the HDI.

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 difference between how much a consumer is at most willing to pay for a good and how much they actually pay.

Consumption (C)

Spending by households on durable and non-durable goods and on services over a period of time.

contractionary fiscal policy

Refers to a decrease in government expenditures and/or an increase in taxes that aim at decreasing aggregate demand and thus reducing inflationary pressures.

Contractionary monetary policy

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

Corporate indebtedness

The sum of what a corporation owes to banks or other holders of its debt.

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.

Credit items

Refers to transactions within the balance of payments of a country that lead to an inflow of currency (for example, the export of goods); these transactions enter the account with a plus sign.

Current account

A subaccount of the balance of payments that records the value of net exports in goods and services, net income and net current transfers of a country over a period of time.

Current account deficit

Exists when the sum of net exports of goods and services plus net income plus net current transfers is negative (or simply when debits or outflows are greater than credits or inflows).

Current account surplus

Exists when the sum of net exports of goods and services plus net income plus net current transfers is positive (or simply when credits or inflows are greater than debits or outflows).

Current transfers

An entry in the current account that records payments between residents and non-residents of a country without something of economic value being received in return and that affect directly the level of disposable income (for example, workers remittances, pensions, aid and grants, and so on).

Customs union

An agreement between countries to phase out or eliminate tariffs and other trade barriers and establish a common external barrier toward non-members.

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.

Debit items

Refers to transactions within the balance of payments of a country that lead to an outflow of currency (for example, the import of services); these transactions enter the account with a minus sign.

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 management

A (Keynesian) policy emphasising the importance of government intervention in managing the level of aggregate demand in the economy, through fiscal and monetary policies.

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.

Demand-side policies

Refers to economic policies that aim at affecting aggregate demand and thus macroeconomic variables such as growth, inflation and employment; demand side policies include fiscal policy and monetary policy.

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.

Direct taxes

Taxes on income, profits or wealth paid directly to the government.

Disinflation

A fall in the rate of inflation.

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 Integration

Economic interdependence between countries usually involving agreements between two or more countries to phase-out or eliminate trade and other barriers between them.

Economic well-being

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

Economically least developed countries (ELDC's)

Those countries classified by the UN as being "low-income countries confronting severe structural impediments to sustainable development. They are highly vulnerable to economic and environmental shocks and have low levels of human assets".

Economics

"Economics is 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.

Excess supply

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

Exchange rate

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

Excludable

A characteristic that most goods have that refers to the ability of producers to charge a price and thus exclude whoever is not willing or able to pay for it from enjoying it.

expansionary fiscal policy

Refers to an increase in government expenditures and/or a decrease in taxes that aim at increasing aggregate demand and thus real output and employment.

Expansionary monetary policy

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

Expenditure Approach

One of three analytically equivalent approaches of measuring GDP that adds all the expenditures made on final domestic goods and services over a period of time by households, firms, the government and foreigners.