IB Economics - Glossary Of Subject-Specific Terms 2022
Syllabus Exam With Complete Solutions
Allocative inefficiency - ANSWER When either more or less than the socially
optimal amount is produced and consumed
so that misallocation of resources results. MSB
MSC.
Anchoring - ANSWER Refers to situations when people rely on a piece
of information that is not necessarily relevant as
a reference point when making a decision.
Abnormal profit - ANSWER This arises when average revenue is greater than
average cost (greater than the minimum return required by a firm to remain in a
line of business).
Absolute advantage - ANSWER A country has an absolute advantage in the
production of a good if it can produce more of it with the same resources or,
equivalently, if it can produce the same amount using fewer resources
compared to another country.
Absolute poverty - ANSWER People living below the minimum income necessary
to satisfy basic physical needs (food, clothing, and shelter); as of October 2015,
the World Bank international poverty line is set at US $1.90 PPP per day.
Abuse of market power - ANSWER When a firm acts with the intention to
eliminate competitors or to prevent entry of new firms in a market.
Actual growth - ANSWER Occurs when real output (real GDP) increases through
time and is a result of greater or better use of existing resources. In the PPC
model it can be illustrated by a movement from a point inside a PPC to another
point in the northeast direction.
Administrative barriers - ANSWER Trade barriers in the form of regulations that
aim to limit imports into a country. These barriers may take the form of product
safety standards, sanitary standards or pollution standards but
- ANSWER may also include more stringent than necessary application of
customs procedures.
,Adverse selection - ANSWER A type of market failure involving asymmetric
information, where the party with the incomplete information is induced to
withdraw from the market. The buyer, for example, of a used car, may hesitate
to buy without knowing about the quality of the vehicle. The seller, for example
of health insurance, may hesitate to sell a policy without knowing the health of
the buyer.
Aggregate demand (AD) - ANSWER Planned spending on domestic goods and
services at different average price levels, per period of time. Consists of
consumption, investment and government expenditures plus net exports.
Aggregate demand curve - ANSWER A curve showing the planned level of
spending on domestic output at different average price levels.
Aggregate supply (AS) - ANSWER The planned level of output domestic firms are
willing and able to offer at different average price levels.
Aggregate supply curve - ANSWER A curve showing the planned level of output
that domestic firms are willing and able to offer at different average price levels.
Allocative efficiency - ANSWER Achieved when just the right amount of goods
and services are produced from society's point of view so that scarce resources
are allocated in the best possible way. It is achieved when, for the last unit
produced, price (P) is equal to marginal cost (MC), or more generally, if marginal
social benefit (MSB) is equal to marginal social cost (MSC).
Allocative inefficiency - ANSWER When either more or less than the socially
optimal amount is produced and consumed so that misallocation of resources
results. MSB does not equal MSC.
Anchoring - ANSWER Refers to situations when people rely on a piece of
information that is not necessarily relevant as a reference point when making a
decision.
Anti-dumping - ANSWER Typically refers to tariffs that aim at raising the
artificially low price of a dumped imported good to the level of the higher
domestic price. A dumped good is one that is exported at a price below the cost
of producing it.
Anti-monopoly regulation - ANSWER Laws and regulations that are intended to
restrict anti-competitive behaviour of firms that are abusing their market power.
Appreciation - ANSWER When the price of a currency increases in a floating
exchange rate system.
,Appropriate technology - ANSWER Technology that relies mostly on the
relatively abundant factor an economy is endowed with.
Asymmetric information - ANSWER A type of market failure where one party in
an economic transaction has access to more or better information than the
other party.
Automatic stabilizers - ANSWER Institutionally built-in features (like
unemployment benefits and progressive income taxation) that tend to decrease
the short-term fluctuations of the business cycle without the need for
governments to intervene.
Average costs - ANSWER Total costs per unit of output produced.
Average revenue - ANSWER Revenue earned per unit sold; average revenue is
thus equal to the price of the good.
Average tax rate - ANSWER The ratio of the tax paid by an individual over their
income expressed as a percentage.
Balance of payments - ANSWER A record of the value of all transactions of a
country with the rest of the world over a period of time.
Balance of trade in goods - ANSWER Part of the balance of payments, it is the
value of exports of goods of a country minus the value of imports of goods over a
given period of time.
Balance of trade in services - ANSWER Part of the balance of payments, it is the
value of exports of services of a country minus the value of imports of services
over a given period of time.
Barriers to entry - ANSWER Anything that deters entry of new firms into a
market, for example, licenses or patents.
Behavioural economics - ANSWER A subdiscipline of economics that relies on
elements of cognitive psychology to better understand decision-making by
economic agents. It challenges the assumption that economic agents
(consumers or firms) will always make rational choices with the aim of
maximizing with respect to some objective.
Biases - ANSWER Systematic deviations from rational choice decision-making.
Bilateral trade agreement - ANSWER An agreement between two countries to
phase- out or eliminate trade related barriers.
, Bounded rationality - ANSWER A term introduced by Herbert Simon that
suggests consumers and businesses have neither the necessary information nor
the cognitive abilities required to maximize with respect to some objectives
(such as utility), and thus choose to satisfice. They therefore are rational only
within limits.
Bounded self-control - ANSWER The idea that individuals, even when they know
what they want, may not be able to act in their interests. Findings of bounded
self- control include evidence of procrastination (for example, among students,
professionals and others) that may result in self-harm, and submitting to
temptation (for example, dieters).
Bounded selfishness - ANSWER The idea that people do not always maximize
self-interest but also have concern for the well- being of others as shown by
volunteer work and charity contributions.
Budget deficit - ANSWER When government expenditures exceed government
(tax) revenues usually over a period of a year.
Business confidence - ANSWER A measure of the degree of optimism that
businesses have about the economic future.
Business cycle - ANSWER The short-term fluctuations of real GDP around its
long-term trend (or potential output).
Business tax - ANSWER Tax levied on the income of a business or corporation.
Capital - ANSWER Physical capital refers to means of production that include
machines, tools, equipment and factories; the term may also refer to the
infrastructure of a country. Human capital refers to the education, training, skills
and experience embodied in the labour force of a country.
Capital account - ANSWER A subaccount of the balance of payments that
includes credit and debit entries for non-produced, non-financial assets as well
as capital transfers between residents and non-residents.
Capital flight - ANSWER Occurs when money and other assets flow out of a
country to seek a "safe haven" in another country.
Capital gains tax - ANSWER A tax on the profits realized from the sale of
financial assets such as stocks or bonds.
Capital transfers - ANSWER Include financial or non-financial assets for items
including debt forgiveness, investment, non- life insurance claims. They are part
of the capital account of the balance of payments.
Syllabus Exam With Complete Solutions
Allocative inefficiency - ANSWER When either more or less than the socially
optimal amount is produced and consumed
so that misallocation of resources results. MSB
MSC.
Anchoring - ANSWER Refers to situations when people rely on a piece
of information that is not necessarily relevant as
a reference point when making a decision.
Abnormal profit - ANSWER This arises when average revenue is greater than
average cost (greater than the minimum return required by a firm to remain in a
line of business).
Absolute advantage - ANSWER A country has an absolute advantage in the
production of a good if it can produce more of it with the same resources or,
equivalently, if it can produce the same amount using fewer resources
compared to another country.
Absolute poverty - ANSWER People living below the minimum income necessary
to satisfy basic physical needs (food, clothing, and shelter); as of October 2015,
the World Bank international poverty line is set at US $1.90 PPP per day.
Abuse of market power - ANSWER When a firm acts with the intention to
eliminate competitors or to prevent entry of new firms in a market.
Actual growth - ANSWER Occurs when real output (real GDP) increases through
time and is a result of greater or better use of existing resources. In the PPC
model it can be illustrated by a movement from a point inside a PPC to another
point in the northeast direction.
Administrative barriers - ANSWER Trade barriers in the form of regulations that
aim to limit imports into a country. These barriers may take the form of product
safety standards, sanitary standards or pollution standards but
- ANSWER may also include more stringent than necessary application of
customs procedures.
,Adverse selection - ANSWER A type of market failure involving asymmetric
information, where the party with the incomplete information is induced to
withdraw from the market. The buyer, for example, of a used car, may hesitate
to buy without knowing about the quality of the vehicle. The seller, for example
of health insurance, may hesitate to sell a policy without knowing the health of
the buyer.
Aggregate demand (AD) - ANSWER Planned spending on domestic goods and
services at different average price levels, per period of time. Consists of
consumption, investment and government expenditures plus net exports.
Aggregate demand curve - ANSWER A curve showing the planned level of
spending on domestic output at different average price levels.
Aggregate supply (AS) - ANSWER The planned level of output domestic firms are
willing and able to offer at different average price levels.
Aggregate supply curve - ANSWER A curve showing the planned level of output
that domestic firms are willing and able to offer at different average price levels.
Allocative efficiency - ANSWER Achieved when just the right amount of goods
and services are produced from society's point of view so that scarce resources
are allocated in the best possible way. It is achieved when, for the last unit
produced, price (P) is equal to marginal cost (MC), or more generally, if marginal
social benefit (MSB) is equal to marginal social cost (MSC).
Allocative inefficiency - ANSWER When either more or less than the socially
optimal amount is produced and consumed so that misallocation of resources
results. MSB does not equal MSC.
Anchoring - ANSWER Refers to situations when people rely on a piece of
information that is not necessarily relevant as a reference point when making a
decision.
Anti-dumping - ANSWER Typically refers to tariffs that aim at raising the
artificially low price of a dumped imported good to the level of the higher
domestic price. A dumped good is one that is exported at a price below the cost
of producing it.
Anti-monopoly regulation - ANSWER Laws and regulations that are intended to
restrict anti-competitive behaviour of firms that are abusing their market power.
Appreciation - ANSWER When the price of a currency increases in a floating
exchange rate system.
,Appropriate technology - ANSWER Technology that relies mostly on the
relatively abundant factor an economy is endowed with.
Asymmetric information - ANSWER A type of market failure where one party in
an economic transaction has access to more or better information than the
other party.
Automatic stabilizers - ANSWER Institutionally built-in features (like
unemployment benefits and progressive income taxation) that tend to decrease
the short-term fluctuations of the business cycle without the need for
governments to intervene.
Average costs - ANSWER Total costs per unit of output produced.
Average revenue - ANSWER Revenue earned per unit sold; average revenue is
thus equal to the price of the good.
Average tax rate - ANSWER The ratio of the tax paid by an individual over their
income expressed as a percentage.
Balance of payments - ANSWER A record of the value of all transactions of a
country with the rest of the world over a period of time.
Balance of trade in goods - ANSWER Part of the balance of payments, it is the
value of exports of goods of a country minus the value of imports of goods over a
given period of time.
Balance of trade in services - ANSWER Part of the balance of payments, it is the
value of exports of services of a country minus the value of imports of services
over a given period of time.
Barriers to entry - ANSWER Anything that deters entry of new firms into a
market, for example, licenses or patents.
Behavioural economics - ANSWER A subdiscipline of economics that relies on
elements of cognitive psychology to better understand decision-making by
economic agents. It challenges the assumption that economic agents
(consumers or firms) will always make rational choices with the aim of
maximizing with respect to some objective.
Biases - ANSWER Systematic deviations from rational choice decision-making.
Bilateral trade agreement - ANSWER An agreement between two countries to
phase- out or eliminate trade related barriers.
, Bounded rationality - ANSWER A term introduced by Herbert Simon that
suggests consumers and businesses have neither the necessary information nor
the cognitive abilities required to maximize with respect to some objectives
(such as utility), and thus choose to satisfice. They therefore are rational only
within limits.
Bounded self-control - ANSWER The idea that individuals, even when they know
what they want, may not be able to act in their interests. Findings of bounded
self- control include evidence of procrastination (for example, among students,
professionals and others) that may result in self-harm, and submitting to
temptation (for example, dieters).
Bounded selfishness - ANSWER The idea that people do not always maximize
self-interest but also have concern for the well- being of others as shown by
volunteer work and charity contributions.
Budget deficit - ANSWER When government expenditures exceed government
(tax) revenues usually over a period of a year.
Business confidence - ANSWER A measure of the degree of optimism that
businesses have about the economic future.
Business cycle - ANSWER The short-term fluctuations of real GDP around its
long-term trend (or potential output).
Business tax - ANSWER Tax levied on the income of a business or corporation.
Capital - ANSWER Physical capital refers to means of production that include
machines, tools, equipment and factories; the term may also refer to the
infrastructure of a country. Human capital refers to the education, training, skills
and experience embodied in the labour force of a country.
Capital account - ANSWER A subaccount of the balance of payments that
includes credit and debit entries for non-produced, non-financial assets as well
as capital transfers between residents and non-residents.
Capital flight - ANSWER Occurs when money and other assets flow out of a
country to seek a "safe haven" in another country.
Capital gains tax - ANSWER A tax on the profits realized from the sale of
financial assets such as stocks or bonds.
Capital transfers - ANSWER Include financial or non-financial assets for items
including debt forgiveness, investment, non- life insurance claims. They are part
of the capital account of the balance of payments.
