IB Economics HL flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Opportunity cost

The value of the next-best alternative forgone when a choice is made. It includes implicit costs and explains why the PPC is downward sloping.

Production possibility curve

A curve showing the maximum combinations of two goods an economy can produce with all resources fully and efficiently employed at a given technology.

Price elasticity of demand

The percentage change in quantity demanded divided by the percentage change in price. Absolute values above one mean elastic demand; below one, inelastic.

Cross elasticity of demand

The percentage change in quantity demanded of one good divided by the percentage change in the price of another. Positive for substitutes, negative for complements.

Price ceiling

A maximum legal price set below equilibrium, creating excess demand, shortages and non-price rationing such as queues or black markets.

Negative externality

A cost of production or consumption borne by third parties not involved in the transaction, causing marginal social cost to exceed marginal private cost and overproduction.

Public good

A good that is non-rival and non-excludable, such as national defence. Markets underprovide it because of the free-rider problem.

Normal profit

The minimum return needed to keep a firm in an industry, equal to the opportunity cost of the entrepreneur's resources. Economic profit is zero at this point.

Economies of scale

Falls in long-run average cost as output rises, arising from specialisation, bulk buying, financial advantages and spreading fixed costs over more units.

Profit maximising condition

A firm maximises profit where marginal revenue equals marginal cost and marginal cost is rising. This applies in every market structure.

Kinked demand curve

An oligopoly model where rivals match price cuts but ignore price rises, making demand elastic above and inelastic below the current price, so prices stay rigid.

Allocative efficiency

Achieved where price equals marginal cost, so the value consumers place on the last unit equals its cost of production and total surplus is maximised.

Gross domestic product

The total market value of final goods and services produced within a country's borders in a period, measured in real terms to remove inflation.

Aggregate demand

Total planned expenditure on domestic output: consumption plus investment plus government spending plus exports minus imports. It slopes down with the price level.

Demand-pull inflation

Inflation caused by aggregate demand growing faster than productive capacity, shifting AD right along an upward-sloping SRAS and raising the price level.

Structural unemployment

Unemployment from a mismatch between workers' skills or location and available jobs, often caused by technological change or deindustrialisation. It resists demand management.

Crowding out

When government borrowing to finance a fiscal deficit raises interest rates and displaces private investment, weakening the expansionary effect of fiscal policy.

Natural rate of unemployment

The unemployment rate consistent with stable inflation, also called NAIRU. It reflects frictional and structural factors, not deficient demand.

Rational expectations

The new classical assumption that agents use all available information, including policy rules, so anticipated policy cannot change real output.

Gini coefficient

A measure of income inequality from zero to one, derived from the Lorenz curve. Zero means perfect equality and one means complete inequality.

Solow growth model

A model where growth comes from capital accumulation and technology, with diminishing returns to capital implying eventual convergence of poorer and richer economies.

Comparative advantage

A country has it when it produces a good at a lower opportunity cost than a trading partner, forming the basis for mutually beneficial specialisation and trade.

Tariff

A tax on imported goods that raises their domestic price, protects domestic producers and generates government revenue while reducing consumer surplus.

Marshall-Lerner condition

A devaluation improves the current account only when the sum of the price elasticities of export and import demand exceeds one.

J-curve

The pattern where a currency devaluation initially worsens the trade balance before improving it, as quantities adjust slowly while import prices rise.

Trade diversion

When a customs union causes imports to switch from a lower-cost non-member to a higher-cost member partner because of the common external tariff.

Human Development Index

A composite index averaging life expectancy, education and gross national income per capita in purchasing power parity, used to measure development beyond output.

Poverty trap

A self-reinforcing cycle where low income leads to low saving and investment, which keeps income low, requiring external intervention to break.

Import substitution

A development strategy protecting domestic industry with tariffs and quotas to replace imported manufactures, risking inefficiency and limited markets.

Sustainable Development Goals

Seventeen goals adopted by the United Nations in 2015 with a 2030 deadline, covering poverty, health, education, inequality, climate and institutions.

Internal assessment portfolio

Three commentaries of up to 750 words each on distinct news articles from different syllabus sections, marked out of 45 in total.

Commentary diagram requirement

Each commentary must include a correctly labelled diagram whose shifts and equilibrium changes are explicitly explained in the analysis, not merely inserted.