IB Economics SL key terms

The condition in which available resources are limited relative to the unlimited wants of people, so choices must be made about what to produce and for whom.

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

The inputs used to produce goods and services: land, labour, capital and entrepreneurship, each earning a corresponding reward of rent, wages, interest and profit.

A curve showing the maximum combinations of two goods an economy can produce with all resources fully and efficiently employed, given constant or changing technology.

An increase in the real output of an economy over time, shown by an outward shift of the production possibility curve or a rise in real GDP.

A system in which resources are allocated mainly through the price mechanism, with private ownership and the profit motive guiding production decisions rather than central planning.

The signalling, incentive and rationing function of prices in a free market, whereby changing prices guide resources towards goods consumers value most.

The quantity of a good or service consumers are willing and able to buy at each price over a period of time, other things being equal.

The principle that, ceteris paribus, as the price of a good rises the quantity demanded falls, producing a downward-sloping demand curve.

The quantity of a good or service producers are willing and able to offer for sale at each price over a period, other things being equal.

The price at which quantity demanded equals quantity supplied, so there is no tendency for the price to change and the market clears.

A measure of 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 quantity demanded to a change in consumer income, calculated as the percentage change in quantity demanded divided by the percentage change in income.

A measure of how responsive quantity supplied is to a change in price, calculated as the percentage change in quantity supplied divided by the percentage change in price.

The amount received by firms from selling output, equal to price multiplied by quantity sold; its change after a price change reveals the elasticity of demand.

The difference between what consumers are willing to pay for a good and what they actually pay, represented by the area below the demand curve and above the price.

The difference between the price producers receive and the minimum price at which they would be willing to supply, shown by the area above the supply curve and below the price.

The condition where resources are distributed among goods in line with consumer preferences, achieved where marginal social benefit equals marginal social cost.

A situation in which a free market fails to allocate resources efficiently, so total welfare is not maximised and output differs from the socially optimal level.

A cost or benefit arising from production or consumption that falls on third parties not involved in the market transaction and is not reflected in the price.

A good whose consumption creates negative externalities or is judged harmful to consumers, often over-consumed because individuals underestimate the private costs involved.

A good or service whose consumption generates positive externalities or is considered socially desirable, often under-consumed because consumers underestimate the private benefits.

A good that is non-rivalrous and non-excludable, meaning one person's use does not reduce availability to others and users cannot easily be prevented from consuming it.

The tendency of individuals to benefit from a good without paying for it when the good is non-excludable, leading private markets to underprovide it.

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

A maximum price set below equilibrium, intended to make a good affordable; it creates excess demand, shortages and possible non-price rationing.

A minimum price set above equilibrium, intended to raise incomes or protect producers; it creates excess supply and may require government purchase of the surplus.

A payment by government to producers or consumers that lowers the cost of production or the price paid, shifting supply rightwards and raising output.

A tax levied on the sale of a good or service that raises the price paid by consumers and shifts the supply curve upwards by the amount of the tax.

The total planned spending on domestic output at each price level, made up of consumption, investment, government spending and net exports.

The total output producers in an economy are willing and able to supply at each price level, determined by costs of production and productive capacity.

A sustained increase in the general price level of an economy over time, reducing the purchasing power of money and measured by a consumer price index.

The situation of people of working age who are actively seeking work but cannot find it, measured as a proportion of the labour force.

The use of government spending and taxation to influence aggregate demand and the level of economic activity, output and employment.

Action by a central bank to influence the money supply and interest rates in order to affect aggregate demand, inflation and output.

Measures designed to increase the productive capacity of an economy, such as education, training, deregulation and infrastructure investment, shifting aggregate supply rightwards.

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

The price of one currency expressed in terms of another, determined in foreign exchange markets by the demand for and supply of currencies.

A record of all economic transactions between a country and the rest of the world over a period, comprising the current account and the financial account.

The growing integration of national economies through trade, investment, migration and technology, increasing the movement of goods, capital and information across borders.

An improvement in the living standards and well-being of a population, involving rising income per head alongside better health, education and reduced poverty.

A composite measure of development combining income per head, life expectancy and education indicators, used to compare well-being across countries.