IB Economics HL key terms

The condition where finite resources are insufficient to satisfy all human wants at a zero price, forcing individuals and societies to make choices about how to allocate those resources.

The value of the next best alternative forgone when a choice is made, measured in terms of the benefits that could have been gained from the option not chosen.

A curve showing the maximum combinations of two goods an economy can produce when all resources are fully and efficiently employed, given current technology.

A statement about what is or will be, which can be tested against evidence and shown to be true or false, without involving value judgements.

A statement containing a value judgement about what ought to be, which cannot be tested or refuted by empirical evidence alone because it rests on opinion.

The responsiveness of quantity demanded to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.

The responsiveness of demand to a change in consumer income, calculated as the percentage change in quantity demanded divided by the percentage change in income.

The responsiveness of quantity supplied to a change in price, calculated as the percentage change in quantity supplied divided by the percentage change in price.

A tax levied on spending or on a good or service rather than on income, which raises the cost of production and shifts the supply curve upward.

A payment made by government to producers to lower their costs of production, shifting the supply curve downward and increasing the quantity supplied at each price.

A maximum legal price set below the equilibrium price, which creates excess demand and typically requires non-price rationing such as queues or waiting lists.

A minimum legal price set above the equilibrium price, which creates excess supply and often leads to government purchases or storage of the surplus.

A cost imposed on third parties arising from the production of a good, such as pollution, which is not reflected in the private costs of the producer.

A good or service whose consumption generates positive externalities or which individuals undervalue, so that it is underprovided by the market relative to the socially optimal quantity.

A good or service whose consumption generates negative externalities or which individuals overvalue, so that it is overprovided by the market relative to the socially optimal quantity.

A good that is non-rivalrous and non-excludable, meaning one person's consumption does not reduce availability to others and non-payers cannot easily be excluded.

A resource that is rivalrous but non-excludable, such as ocean fish stocks, which tends to be overused and depleted in the absence of regulation.

The addition to total cost resulting from producing one more unit of output, calculated as the change in total cost divided by the change in quantity.

The fall in long-run average cost as a firm expands its scale of output, arising from factors such as specialisation, bulk buying and indivisibilities of capital.

A market structure with many small firms, homogeneous products, free entry and exit, and perfect information, where each firm is a price taker facing a horizontal demand curve.

A market structure with a single dominant firm supplying the whole market, protected by high barriers to entry, which typically faces a downward-sloping demand curve and can earn long-run supernormal profit.

The practice of charging different prices to different consumers for the same product for reasons not related to differences in production costs, typically requiring market power and separable markets.

The total market value of all final goods and services produced within a country's borders in a given period, used as a measure of national output.

The total planned spending on domestic goods and services at each price level, comprising consumption, investment, government spending and net exports.

The use of government spending and taxation to influence the level of aggregate demand and achieve macroeconomic objectives such as full employment and price stability.

The use of interest rates and the money supply by a central bank to influence aggregate demand and control inflation, typically targeting a specific inflation rate.

A sustained increase in the general price level of an economy over time, measured by the percentage change in a consumer price index, which reduces the purchasing power of money.

The situation where people of working age who are actively seeking work at the going wage rate are unable to find employment, measured by the unemployment rate.

A curve showing the relationship between inflation and unemployment, suggesting a short-run trade-off where lower unemployment is associated with higher inflation and vice versa.

A curve showing the cumulative share of income received by cumulative shares of the population, used with the Gini coefficient to illustrate the degree of income inequality.

A numerical measure of income inequality ranging from 0 for perfect equality to 1 for perfect inequality, derived from the area between the Lorenz curve and the line of equality.

The ability of a country to produce a good at a lower opportunity cost than another country, which forms the basis for mutually beneficial specialisation and trade.

A tax imposed on imported goods, which raises their domestic price, reduces the quantity imported and protects domestic producers from foreign competition.

A physical limit on the quantity of a good that may be imported during a given period, which restricts supply and typically raises the domestic price.

The price of one currency expressed in terms of another, determined in floating systems by demand and supply and in fixed systems by government or central bank intervention.

A record of all economic transactions between residents of a country and the rest of the world in a period, comprising the current, capital and financial accounts.

A composite measure of development combining life expectancy, mean and expected years of schooling, and gross national income per capita, used to compare welfare across countries.

A multidimensional improvement in living standards encompassing rising income, reduced poverty, better health and education, and greater equality of opportunity.

Investment by a firm in productive assets located in another country, giving the investor a lasting management interest and typically bringing capital, technology and jobs to the host economy.