Econ - IB definitions

• Abnormal profit


  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


  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


  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

  When a firm acts with the intention to eliminate competitors or to prevent entry of new firms in a market
• Actual growth


  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


  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 may also include more stringent than necessary application of customs procedures
• Adverse selection


  A type of market failure involving asymmetric information, where the party with the incomplete information is induced to withdraw from the market
• Aggregate demand (AD)


  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


  A curve showing the planned level of spending on domestic output at different average price levels
• Aggregate supply (AS)


  The planned level of output domestic firms are willing and able to offer at different average price levels
• Aggregate supply curve


  A curve showing the planned level of output that domestic firms are willing and able to offer at different average price levels
• Allocative efficiency


  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


  When either more or less than the socially optimal amount is produced and consumed so that misallocation of resources results. MSB ≠ MSC
• Anchoring


  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


  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


  Laws and regulations that are intended to restrict anti-competitive behaviour of firms that are abusing their market power
• Appreciation


  When the price of a currency increases in a floating exchange rate system
• Appropriate technology


  Technology that relies mostly on the relatively abundant factor an economy is endowed with
• Asymmetric information


  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


  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


  Total costs per unit of output produced
• Average revenue


  Revenue earned per unit sold; average revenue is thus equal to the price of the good
• Average tax rate


  The ratio of the tax paid by an individual over their income expressed as a percentage
• Balance of payments


  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

  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

  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


  Anything that deters entry of new firms into a market, for example, licenses or patents
• Behavioural economics


  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


  Systematic deviations from rational choice decision-making
• Bilateral trade agreement


  An agreement between two countries to phase-out or eliminate trade related barriers
• Bounded rationality


  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


  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


  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


  When government expenditures exceed government (tax) revenues usually over a period of a year
• Business confidence


  A measure of the degree of optimism that businesses have about the economic future
• Business cycle


  The short-term fluctuations of real GDP around its long-term trend (or potential output)
• Business tax


  Tax levied on the income of a business or corporation
• Capital


  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


  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


  Occurs when money and other assets flow out of a country to seek a "safe haven" in another country