IB Economics SL Terms

Economics

The study of choices leading to the best possible use of scarce resources in order to best satisfy the unlimited human needs and wants.

Microeconomics

The part of economics concerned with such individual units as industries, firms, and households and with individual markets, specific goods, services.

Macroeconomics

The part of economics concerned with the economy as a whole.

Utility

The sanctification or pleasure a consumer obtains from the consumption of a good or service.

Scarcity

Insufficiency or shortness of supply.

Opportunity cost

The cost expressed in terms of the next best alternative sacrificed.

Ceteris Paribus

All else remains the same.

Factors of production

All resources or inputs used to produce goods and services. LAND, LABOR, CAPITAL, AND ENTREPRENEURSHIP.

Law of Demand

The principle that there is an inverse relationship between the price of a good and the quantity buyers are willing to purchase in a defined time period, ceteris paribus.

Substitution effect

A lower price relative to other goods attracts new buyers - and vice versa.

Income effect

A lower price frees income for additional purchases - and vice versa.

Reason for shift of a Demand Curve

T- tastes and preferences.

R- related goods prices.

I- income.

B- buyers in the market.

E- expectations of consumers.

Complementary goods

Goods that are jointly consumed with another good.

Substitute goods

Goods that compete with one another for consumer purchases.

Normal goods

Any good for which there is a direct relationship between changes in income and its demand curve.

Inferior goods

Any good for which there is an inverse relationship between changes in income and its demand curve.

Law of supply

The principle that there is a direct relationship between the price of a good and the quantity sellers are willing to offer for sale in a defined time period, ceteris paribus.

Reasons for shift of Supply curve

R- resource prices.

O- other goods prices the firm produces.

T- technology.

T- taxes and subsidies.

E- expectations of producers.

N- number of sellers in the market.

Shortages

The amount by which the quantity demanded of a product exceeds the quantity supplied at a particular (below equilibrium) price.

Surpluses

The amount by which the quantity supplied of a product exceeds the quantity demanded at a specific (above equilibrium) price.

Price Ceilings

A legally established maximum price for a good or service.

Elasticity

the measure of responsiveness in one variable when another variable changes.

PED

A measure of how much the quantity demanded of a product changes when there is a change in the price of the product.

XED

A measure of how much the demand for a product changes when there is a change in the price of another product.

YED

A measure of how much the demand for a product changes when there is a change in the consumer's income.

PES

A measure of how much the supply f a product changes when there is a change in the price of the product.

Market failure

Market failures are externalities, inequality in the distribution of income and wealth, and the abuse of monopoly power.

Public goods

goods that would not be provided at all in a free market.

Merit goods

Private good which has positive externalities.

Demerit goods

private goods which have negative externalities and are deemed politically undesirable.

Externality

Occurs when the actions of consumers or producers give rise to positive or negative side-effects on other people who are not part of these actions.

Positive externality

a spill-over effect that benefits third parties.

Negative extrenality

spillover effect that negatively impacts the 3rd party.

GDP

a measure of the value of aggregate output of the economy. It is the market value of all final good sand services produced within a country during a given time period.

GNP

The value of output produced within a country plus net property income from abroad.

Nominal GDP vs. Real GDP

Nominal GDP are current prices and Real GDP are constant unchanging prices.

Economic Growth

A measure of the value of output of goods and services within a time period.

Economic Development

A measure of the welfare of humans in a society.

Aggregate Demand

The sum total of all goods and services demanded in the economy.

Aggregate Supply

The sum total of all final goods and services which firms plan to produce.

Monetary Policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

Fiscal Policy

Government policy that attempts to manage the economy by controlling taxing and spending.

SRAS

Period in which the prices of final goods & services change, but wages (& other resource prices) do not respond.

LRAS

Period in which factor prices do adjust to final prices or price levels.

Inflation

A sustained upward movement in the average level of prices.

Hyperinflation

A very rapid rise in the price level; an extremely high rate of inflation.

Deflation

a sustained downward movement in the average level of prices.

Unemployment

the number of people who are unemployed expressed as a percentage of the total labor force.

Business Cycle

Reoccuring increases and decreases in the level of economic activity over periods of years.

Recessionary gap

The amount by which the aggregagte expenditures schedule must shift upward to increase the real GDP to its full employment, non inflationary level.

Inflationary Gap

The amount by which the aggregate expenditures schedule must shift downward to decrease the nominal GDP to its full employment, noninflationary level.

Direct taxes

Taxes paid directly to the government tax authorities by the taxpayer, including personal income taxes, corporate income taxes, and wealth taxes.

Indirect taxes

Taxes levied on spending to buy goods and services, called indirect because payments of some or all of the taxes by the consumer is paid to the government authorities by the firms.

Crowding out effect

This reduction in demand that results when a fiscal expansion raises the interest rate.

Contractionary monetary policy

A monetary policy usually pursued in an inflationary period. It involves increasing the interest rate (to lower investment and consumption spending).

Expansionary monetary policy

usually pursued in a recession, involving a decrease in interest rates, intended to increase investment and consumption spending.

Tariff

a duty or tax levied on foreign imports for revenue or for protective purposes.

Import quota

maximum absolute amount of a particular good that may be imported.

Tariff quota

permits a certain amount of an imported good to enter at one tariff rates, but charges a higher tariff rate for amounts over the optimum.

Balance of payments

A country's account with the rest of the world.

Current account

This includes the balance of trade , the balance of services , inflows minus outflows of income and current transfers.

Capital account

Refers to the inflows minus the outflows of funds for capital transfers and the purchase or use of non-produced natural resources.

Comparative advantage

Where one country can produce goods at a lower opportunity cost - it sacrifices less resources in production.

Absolute advantage

Where one country can produce goods with fewer resources than another.

Free trade

The absence of government intervention of any kind in international trade, so that trade takes place without any restrictions between individuals or firms in different countries.

Protectionism

A government's establishment of economic policies that restrict imports to protect domestic industries.

World Trade Organization

an international organization based in Geneva that monitors and enforces rules governing global trade.

Purchasing power parity

a measure of how many units of currency are needed in one country to buy the amount of goods and services that one unit of currency will buy in another country.

Depreciation vs. Devaluation

Depreciation is a decrease in the value of currency in the context of a floating (or flexible) exchange rate system or managed exchange rate system. Meanwhile, devaluation is a decrease in the value of the currency in the context of a fixed exchange rate system.

Revaluation vs. Appreciation

Revaluation is an increase in the official value of a currency (in a fixed-exchange-rate system). Meanwhile, appreciation is an increase in the value of a currency in the context of a floating (flexible) exchange rate system or managed exchange rate system.

Exchange rates

The rate at which one currency can be exchanged for another.

Infastructure

Numerous types of physical capital resulting from investments, making major contributions to economic growth and development by lowering costs of production and increasing productivity. Examples: roads, airports, and dams.

Absolute poverty

The inability of an individual or a family to afford a basic standard of goods and services, where the standard is absolute and unchanging over time.

Relative Poverty

A condition that exists when people may be able to afford basic necessities but are still unable to maintain an average standard of living.

Lorenz Curve

A curve showing the proportion of national income earned by a given percentage of the population.

Gini coefficient

The proportion of the area taken up by the Lorenz Curve in relation to the overall area under the line of equality.

IMF

an international financial institution who make short-term loans to governments on commercial terms in order to stabilize exchange rates, alleviate balance of payments difficulties, and help countries meet their foreign debt obligations.

Humanitarian aid

A Foreign aid which extends to regions where there are emergencies caused by violent conflicts or natural disasters such as floods, earthquakes and tsunamis, intended to save lives, ensure access to basic necessities and provide assistance with reconstruction.

Development aid

Foreign aid intended to help economically less developed countries; may involve project aid, program aid, technical assistance, or debt relief.

Demand-pull inflation

Increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand.

Cost-push inflation

Increase in the price level (inflation) resulting an increase in resource costs. Inflation caused y reductions in aggregate supply.