Economics - Prepare for Success (Paul Hoang) (Glossary pdf)

ib economics key terms

Abnormal profit

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

Absolute advantage

The ability of a country to produce more of a good or service than another country using the same resources or fewer resources.

Absolute poverty

A condition where individuals are deprived of basic human needs for survival, often living below the international or national poverty line.

Actual growth

The current level of real GDP in the economy, represented by movement towards the country’s PPC as more resources are employed.

Administrative barriers

Bureaucratic standards and 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, such as property taxes, tariffs, and sales taxes.

Adverse selection

Undesired decisions or results that occur when buyers and sellers have asymmetric information.

Aggregate demand (AD)

The total value of all goods and services demanded in the economy over a specific time period.

Aggregate supply (AS)

The total output of goods and services that firms in an economy are willing and able to supply at a given time and price level.

Allocative efficiency

A situation where resources are distributed to maximize benefits for consumers and producers, with no one being better off without making someone else worse off.

Appreciation

A sustained increase in the value of one currency in terms of another under a floating exchange rate system.

Asymmetric information

A situation where one economic agent has more or better information than another in a transaction.

Austerity measures

Cutbacks in fiscal spending to repay national debt, achieved by reducing government spending and raising taxes.

Average costs (AC)

The unit costs of production, or the cost of producing one unit of output.

Average revenue (AR)

The price received from the sale of a good or service.

Balance of payments

A financial record of a country’s transactions with the rest of the world, usually over one year.

Balance of trade

The difference between a country’s total export earnings and total import expenditure on goods and services.

Basic economic problem

The challenge of allocating scarce resources to meet unlimited wants, addressing what, how, and for whom to produce.

Behavioural economics

A field that examines the role of cognitive psychology in decision-making, challenging the assumption of rational choices.

Benign deflation

Unharmful deflation where the economy can produce more without an increase in the general price level.

Better Life Index (BLI)

An alternative measure of well-being based on 11 topics identified by the OECD.

Boom

A phase in the business cycle characterized by rising economic activity due to increased aggregate demand.

Budget deficit

A situation where government spending exceeds government revenue over a specific time period.

Business cycle

A model illustrating fluctuations in a country’s economic activity over time, determining long-term growth trends.

Capital

Non-natural resources used in production, such as machinery, equipment, and buildings.

Cartel

An agreement between firms in the same industry to collude in fixing prices or restricting output.

Central bank

The monetary authority responsible for regulating the financial system and implementing monetary policy.

Ceteris paribus

A Latin phrase meaning "all other factors remaining constant," used to explain cause and effect in economics.

Choice architect

An individual or organization that organizes the context in which people make decisions.

Circular economy

An economic system where resources are used sustainably to generate output.

Classical economists

Members of the economic school of thought focusing on self-regulating markets for efficient resource allocation.

Closed economy

An economy that comprises only domestic economic decision-makers, without foreign trade.

Collusion

When two or more firms work together to reduce competition in a market.

Command and control (CAC)

Direct rules or laws governing an activity or industry, specifying what is permitted or illegal.

Common access resources

Rivalrous but non-excludable goods or services not owned by any individual or firm.

Community surplus

The sum of consumer and producer surplus at a given market price, maximizing economic welfare.

Comparative advantage

The ability of a country to produce a good at a lower opportunity cost than another country.

Competitive supply

The output of one product that limits the production of alternative products due to competing resources.

Complements

Products that are jointly demanded, such as printers and ink cartridges.

Composite indicator

A statistical method that combines single indicators of economic development into a combined index.

Concentration ratio

A measure of market power in an industry by adding the market share of the largest firms.

Conflicting macroeconomic objectives

The challenge of achieving multiple macroeconomic goals simultaneously due to trade-offs.

Constant prices

Values of real GDP and GNI adjusted for inflation over time.

Consumer price index (CPI)

A weighted index measuring the change in prices of a representative basket of goods and services.

Consumer surplus

The benefit to buyers who purchase a product at a price lower than what they are willing to pay.

Contractionary fiscal policy

A policy used to reduce economic activity by decreasing government spending and/or raising taxes.

Contractionary monetary policy

A policy aimed at slowing down economic activity by increasing interest rates.

Corporate social responsibility (CSR)

The consideration of a business's impact on society and the environment.

Cost-push inflation

Inflation caused by higher production costs, leading to increased average prices.