IB Economics SL/HL (All Definitions, Diagrams, Calculations)

All SL and HL IB Economics Definitions, Diagrams, Calculations for the first assessment 2022 syllabus. Terms from Hodder Education. Edited by ChatGPT4o.

Abnormal profit

Profit that is greater than normal profit, meaning a firm earns more than in its next best alternative.

Absolute advantage

When a country can produce more of a good than another using the same amount of resources, or the same amount using fewer resources.

Absolute poverty

When individuals are deprived of basic human needs, often living below international or national poverty lines.

Actual growth

Increase in real GDP towards the country’s PPC as more resources are employed.

Administrative barriers

Bureaucratic standards/regulations imposed on foreign firms to protect domestic firms and consumers.

Ad valorem tax

A percentage tax on the value of a good or service (e.g. property taxes, tariffs, sales tax).

Adverse selection

A market outcome where asymmetric information leads to undesired decisions by one party (e.g. buyers with more risk).

Aggregate demand (AD)

Total demand for all goods and services in an economy in a given period.

Aggregate supply (AS)

Total output that firms are willing and able to supply at a given price level and time.

Allocative efficiency

Optimal allocation of resources where no one can be made better off without making someone else worse off.

Appreciation

An increase in the value of a currency relative to another under a floating exchange rate system.

Asymmetric information

Occurs when one party in a transaction has more or better information than the other.

Austerity measures

Policies involving reduced government spending and increased taxes to reduce national debt.

Average cost (AC)

Total cost per unit of output.

Average rate of tax

Total tax paid divided by total income.

Average revenue (AR)

Revenue per unit sold; equivalent to price in most cases.

Balance of payments

Record of all economic transactions between a country and the rest of the world over a period.

Balance of trade

Difference between export earnings and import expenditure on goods and services.

Basic economic problem

Scarcity forces societies to decide what, how, and for whom to produce.

Basic economic questions

What to produce? How to produce? For whom to produce?

Behavioural economics

Studies effects of psychological, cognitive, emotional, cultural factors on decision-making.

Benign deflation

Fall in prices due to increased productivity, often from SRAS shifts outward.

Better Life Index (BLI)

OECD's alternative to GDP, based on 11 dimensions of well-being.

Boom

A phase of the business cycle with high economic activity and increased AD.

Budget deficit

Occurs when government spending exceeds its revenue (G > T).

Business cycle

Fluctuations in economic activity over time, showing phases like boom, recession, recovery, and trough.

Capital

Man-made resources used in production (e.g. machinery, buildings).

Capital account

Part of the BOP recording capital transfers and non-produced, non-financial assets.

Cartel

Agreement among firms in an oligopoly to limit competition, often fixing prices or limiting output.

Central bank

Authority that manages a nation’s currency, money supply, and interest rates.

Ceteris paribus

"All other things being equal" — an assumption to isolate variables in economic models.

Choice architect

Designs the context in which people make decisions to encourage beneficial behaviors.

Choice architecture

The way options are presented to influence decision-making.

Choices

Economic decisions made by individuals, firms, or governments due to scarcity.

Circular economy

An economy aiming for sustainability by reusing, repairing, recycling materials.

Circular flow of income

Model illustrating the flow of money between households and firms.

Classical economists

18th/19th-century thinkers who believed markets self-regulate to allocate resources efficiently.

Closed economy

An economy that does not trade with the outside world (no exports or imports).

Collective self-governance

Community management of common resources without central authority.

Collusion

Firms cooperating to reduce competition.

Command and control (CAC)

Government intervention using laws/regulations to control economic activity.

Common access resources

Resources that are rivalrous but non-excludable (e.g. oceans, forests).

Common market

Trading bloc allowing free movement of goods, services, capital, and labor among member countries.

Community surplus

Total of consumer surplus and producer surplus; indicates overall economic welfare.

Comparative advantage

A country's ability to produce at a lower opportunity cost than others.

Competitive supply

When producing more of one good reduces the ability to produce another due to resource constraints.

Complements

Goods consumed together (e.g. printers and ink).

Composite indicator

Combines several indicators (e.g. HDI) to measure development.

Concentration ratio

Shows market power by summing market shares of the largest firms in an industry.

Conflicting macroeconomic objectives

Government goals (e.g. growth vs inflation control) may be difficult to achieve simultaneously.

Constant prices

Values of economic variables adjusted for inflation (real terms).

Consumer price index (CPI)

Measures average price changes of a basket of goods to calculate inflation.

Consumer surplus

Difference between what consumers are willing to pay and what they actually pay.

Contraction in quantity supplied

Decrease in quantity supplied due to a fall in price (movement along the curve).

Contractionary fiscal policy

Reduces AD by cutting spending or increasing taxes.

Contractionary monetary policy

Reduces economic activity by raising interest rates or reducing money supply.

Corporate social responsibility (CSR)

Businesses considering social and environmental impacts in their operations.

Costs

All expenses incurred in production (fixed + variable costs).

Cost-push inflation

Inflation from rising production costs (e.g. wages, raw materials).

Credit

Inflow of money into the country (e.g. from exports) in BOP.

Credit creation

Process by which banks create money through lending.

Credit items

Transactions that bring money into an economy.

Crowding out

Government borrowing raises interest rates, reducing private investment.

Current account

Part of BOP showing trade in goods/services, income, and transfers.

Current account balance

Net value of current account transactions (surplus, deficit, or balance).

Customs union

Trading bloc with common external tariffs and free trade among members.

Debit

Outflow of money from a country (e.g. from imports).

Debit items

Payments made to other countries.

Debt-to-GDP ratio

Government debt as a percentage of national income.

Decrease in demand

Leftward shift in the demand curve due to non-price factors.

Deficit

Occurs when outflows exceed inflows in any account.

Deflation

Persistent decline in average price levels.

Deflationary gap

When AD is below full employment level (recessionary gap).

Demand

Willingness and ability to purchase goods at various prices.

Demand curve

Graph showing inverse relationship between price and quantity demanded.

Demand-deficient unemployment

Joblessness due to insufficient AD.

Demand for money

Desire to hold money for transactions or speculative purposes.

Demand-pull inflation

Inflation from increased AD.

Demand-side policy

Government policy to influence AD (e.g. fiscal, monetary).

Demerit goods

Goods with negative externalities (e.g. cigarettes).

Depreciation

Decrease in value of a currency under a floating exchange rate system.

Devaluation

Deliberate reduction in value of a fixed exchange rate currency.

Direct provision

Government supply of essential goods/services.

Direct tax

Tax on income, wealth, or profits.

Disinflation

A reduction in the rate of inflation.

Disequilibrium

A situation where market supply and demand are not in balance.

Disposable income

Income remaining after taxes and transfers.

Diversification

Expanding the range of products or markets to reduce risk.

Dumping

Selling goods in a foreign market at below cost or domestic price.

Economic development

Improvements in living standards, income, education, health, and freedom.

Economic growth

Increase in real output/GDP over time.

Economic integration

Process where countries remove barriers to trade and movement of capital/labour.

Economic methodology

Use of models and theories to explain economic behavior.

Economic profit

Profit over and above opportunity costs.

Economies of scale

Cost savings from producing on a larger scale.

Elasticity of demand

Responsiveness of quantity demanded to a change in a determinant.

Elasticity of supply

Responsiveness of quantity supplied to a change in price.

Embargo

Ban on trade with a country.

Empirical evidence

Data obtained by observation or experimentation.

Employment

Use of labor resources in production.