0. IB HL ECONS GLOSSARY

abnormal profit

when total revenue of a firm is greater than its total costs

OR

when average revenue / price is greater than average cost

absolute advantage

the ability of a country to produce a good using fewer resources than another country

absolute poverty

the inability of an individual or a family to afford a basic standard of goods and services

actual growth

growth that occurs due to reduction of unemployment or improvement in efficiency of resource use resulting in a movement of a point inside the PPC to a point closer to the PPC in the northeast direction

administrative barriers

trade protection measures taking the form of administrative procedures that countries may use to prevent the free flow of imports into a country

adverse selection

a type of asymmetric information where one party has more information than the other about the quality of the product being sold, which results in underallocation of resources to the good or service

aggregate demand

the total quantity of goods and services that all buyers in an economy want to buy over a particular time period, at different possible price levels, ceteris paribus

aggregate supply

the total quantity of goods and services produced in an economy over a particular time period, at different price levels, ceteris paribus

allocative efficiency

a characteristic of an efficient market where capital is assigned in a way that is most beneficial to the parties involved, where scarce resources are used to produce the goods & services that mostly satisfy society's needs & wants

appreciation (of currency)

an increase in the value of a currency in the context of a floating exchange rate system or managed exchange rate system

asymmetric information

a type of market failure where buyers and sellers do not have equal access to information, usually resulting in an underallocation of resources to the production of goods and services

automatic stabilisers

factors that automatically, without any action by government authorities, work toward stabilising the economy by reducing the short-term fluctuations of the business cycle

average costs

costs per unit of output, calculated by dividing total cost by the number of units of output produced

average revenue

revenue per unit of output sold, calculated by dividing total revenue by the number of units of output produced

balance of payments

a record of all transactions (payments made and payments received) between the residents of a country and the residents of all other countries

barriers to entry

anything that can prevent a firm from entering an industry and beginning production, resulting in limited degree of competition in the industry

budget deficit

the situation where government tax revenues are less than government expenditures over a specific period of time

budget surplus

the situation where government tax revenues are greater than government expenditures over a specific period of time

business confidence

a measure of the degree of optimism among firms in economy about the future performance of firms and the economy

business cycle

fluctuations in the growth of real output consisting of alternating periods of expansion and contraction

capital account

the inflows minus outflows of funds for capital transfers (debt forgiveness) and the purchase of use of non-produced natural resources

capital expenditures

government's expenditures in public investments or the production of physical capital

capital flight

the large-scale transfer of privately-owned financial capital to another country resulting from fear and uncertainty of holding domestic assets

capital gains tax

a tax on profits from financial investments such as stocks and bonds or from buying and selling real estate

carbon tax

a tax per unit of carbon emissions of fossil fuels

central bank

a financial institution responsible for regulating the country's financial system and commercial banks and carrying out monetary policy

ceteris paribus

"other things being equal," all other variables other than those under investigation are assumed to be constant

choice architecture

the design of particular ways or environments in which people make choices based on the assumption that choices of decision-makers are influenced by how options are presented to them

circular economy

the idea that goods should be produced in a way that can be repaired rather than thrown out

circular flow of income

a flow of income in an economy where the value of output produced is equal to the total income generated in producing that output, which is equal to the expenditures made to purchase that output

circular flow of income model

a model showing the flow of resources from consumers to firms, and the flow of products from firms to consumers, as well as money flows consisting of consumers' income arising from the sale of their resources and firms' revenues arising from the sale of their products

classical economics

the belief that markets working on their own according to the principles of supply and demand automatically adjust to solve all major economic problems and allocate resources efficiently

collective self-governance

a solution to the use of common pool resources where the users take control of the resources and use them in a sustainable way

it presupposes that the users of the resources can communicate with each other, resulting in rules about the use of resources along with sanctions for violations of the rules

collusion

an agreement among firms to fix prices or divide the market between them so as to limit competition and maximise profit

collusive oligopoly

the type of oligopoly where firms agree to restrict output or fix the price in order to limit competition, increase shared market power and increase profits

commercial bank

a financial institution whose main functions are to hold deposits for their customers, to make loans to their customers, to transfer funds from one bank to another and to buy government bodns

common market

a type of trading bloc in which countries that have formed a customs union proceed further to eliminate any remaining tariffs in trade between them by eliminating all restrictions on movements of any factors of production within them on top of having a common external policy

common pool resources

resources that are not owned anyone, do not have a price and are available for anyone to use without payment

comparative advantage

the ability of a country to produce a good at a lower relative opportunity cost than another country

competition

when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market

competitive market

a market composed of many buyers and sellers acting indepedently, none of whom has any ability to influence the price of the product (no market power)

competitive market equilibrium

the point where the demand curve intersects the supply curve in a free competitive market

complementary goods

two or more goods that tend to be used together

an increase in the price of a good will lead to a decrease in the demand of its complement

composite indicator

a summary measure of more than one indicator, often used to measure economic development

concentration ratio

a measure of how much an industry's production is concentrated among the industry's largest firms; it measures the percentage of output produced by the largest firms in an industry and is used to provide an indication of the degree of competition or degree of market power in an industry

consumer confidence

a measure of the degree of optimism of consumers about their future income and the future of the economy

consumer price index

a measure of the cost of living for the typical household; it compares the value of a basket of goods and services in one year with the value of the same basket in a base year

inflation is measured as a percentage change in the value of the basket from 1 year to another

consumption

spending by households on goods and services

contracting out

an agreement made by the government to a private firm to carry out an activity that the government was previously doing itself

contractionary fiscal policy

fiscal policy pursued in an inflation that involves decrease in government spending or an increase in taxes (or both)

contractionary monetary policy

monetary policy pursued in an inflation involving an increase in interest rates, intended to lower investment and consumption spending

corporate income tax

tax on the profits of corporations

corporate indebtedness

the degree to which corporations have debts

corporate social responsibility

the practice of some corporations to avoid socially undesirable activites

cost push inflation

a type of inflation caused by a fall in aggregate supply, usually resulting from increases in costs of production

costs of production

payments by firms to obtain and use factors of production in their production process

credit rating

an assessment of the ability of a borrower to pay back loans

crowding out

if increased government borrowing to finance increased government spending results in a higher rate of interest rates, private investment spending could be reduced thus reversing the impacts of the government's expansionary fiscal policy

current account balance

the sum of credits plus debits in the current account

current account

the balance of trade, plus the balance on imported services, plus the inflows minus outflows of income and current transfers

current account surplus

when the current account balance has a positive value, meaning that credits are larger than debits

current transfers

inflows and outflows of funds for items including gifts, foreign aid and pensions

customs union

a type of trading bloc, consisting of a group of countries that fulfill the requirements of a free trade area and in addition adopts a common policy towards all non-member

cyclical unemployment

a type of unemployment that occurs during the downturns of the business cycle, arising from declining aggregate demand

debit items

payments made to other countries, representing the outflow of foreign exchange from a country

debt relief

the cancellation or forgiveness of all or a portion of a country's debt

debt servicing

the payments that must be made in order to repay the principal plus interest of a loan

default choice

a choice made by default, which means doing the option that results when one does not make a chocie

deferred consumption

when consumers postpone spending if they expect price level to fall

deficit

deficiency of something compared to something else

deflation

a continuing decrease in the general price level

demand

the various quantities of a good that consumers are willing and able to buy at different possible prices during a particular time period, ceteris paribus

demand curve

a curve showing the relationship between the price of a good and the quantity of the good demanded, ceteris paribus

demand management

policies that focus on the the demand side of the economy, attempting to influence aggregate demand to achieve the goals of price stability, full employment and economic growth

demand-pull inflation

a type of inflation caused by an increase in aggregate demand

demand-side policies

policies that attempt to change aggregate demand in order to achieve the goals of price stability, full employment and economic growth, and minimise the severity of the business cycle

consists of fiscal and monetary policies

demerit goods

goods that are considered to be undesirable for consumers and are overprovided by the market due to negative consumption externalities and possible consumer ignorance about the harmful effects

depreciation

a decrease in the value of a currency in the context of a floating exchange rate or managed exchange rate system

derefulation

policies involving the elimination or reduction of government regulation of private sector activities

devaluation

a decrease in the value of a currency in the context of a fixed or pegged exchange rate system

development aid

foreign aid intended to help economically less developed countries with their growth and development efforts

direct taxes

taxes paid directly to the government by the taxpayer, including personal income taxes, corporate income taxes and wealth taxes

disinflation

a fall in the rate of inflation

distribution of income

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diversification

change involving greater variety

used to refer to increasing the variety of goods and services produced and/or exported by a country

economic development

increasing income levels, reducing poverty, reducing income inequalities, reducing unemployment and increasing provision of and access to basic goods and services

economic growth

increases in total real output (per capita) produced by a n economy over time

economic inequality

the degree to which people in a population differ in their ability to satisfy their economic needs

economic integration

economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade barriers between them

economic well-being

levels of prosperity, economic satisfaction, and standards of living among members of society

economically least developed countries

developing countries with very low incomes that have low levels of human capital and a high degree of economic vulnerability

countries that are challenged in achieving sustainable development

economies of scale

decreases in the average costs of production that occur as a firm increases its output by varying all its inputs in the long run

efficiency

making the best possible use of scarce resources to avoid waste

elastic

high responsiveness of a variable to a change in another variable

elasticitiy

a measure of the responsiveness of a variable to changes in any of the variable's determinants

Engel curve

a curve that shows the relationship between consumer income and demand for a product, which indicates whether a good is normal or inferior

entrepreneurship

a special human ability to innovate by developing new ways of doing things, to take business risks and to seek new opportunities

equality

the state of being equal, especially in status, rights, and opportunities.

equilibirum

a state of balance such that there is no tendency to change

equity

the condition of being fair and just