The Economics glossary

Profit above normal profit, earned when total revenue exceeds total economic cost, or when average revenue is greater than average cost (AR > AC).

The ability of a country to produce more of a good than another country using the same quantity of resources, or the same output with fewer resources.

A situation in which income is below the level needed to meet basic needs for survival, such as food, clean water, shelter and clothing, measured against a fixed standard such as an international poverty line.

The principle that submitted work is the student's own, with every source acknowledged; plagiarism, collusion and undeclared use of tools such as AI are forms of misconduct.

The ability of a country's producers to sell goods and services abroad, which depends on transport costs, other countries' trade barriers, product standards, information and export infrastructure.

An increase in real output from using unemployed or inefficiently used resources, shown on a PPC as a movement from a point inside the curve towards the curve.

An indirect tax charged as a fixed percentage of the price of a good, so the tax per unit rises with the price and the supply curve pivots upwards.

Rules, standards, regulations and procedures, such as product, health and safety standards or customs paperwork, that make it harder or costlier to import goods.

The percentage of people aged 15 and over who can read and write a short, simple statement about their everyday life.

A form of asymmetric information arising before a transaction, in which the party with hidden information about quality or risk is the most willing to trade, so the other party attracts mainly bad risks or low-quality goods.

The total planned spending on an economy’s final goods and services at each possible average price level in a given period: consumption plus investment plus government spending plus net exports (C + I + G + (X − M)).

The total quantity of final goods and services that all firms in an economy plan to produce at each possible average price level in a given period.

A situation in which resources produce the mix and quantity of goods society values most; in a market it occurs where marginal benefit equals marginal cost and social surplus is maximised.

A bias in which people rely too heavily on the first piece of information they receive, such as an initial price, when making a judgment or decision.

Laws and regulators that promote competition by preventing firms from abusing market power, blocking mergers that reduce competition, and punishing price fixing and other collusion.

Using relevant economic theory to explain the events in an article and to trace their causes and consequences; criterion C rewards doing so effectively throughout a commentary.

A rise in the value of a currency in a floating exchange rate system, caused by market forces, so that one unit buys more of another currency.

Technology suited to local economic, social and environmental conditions, typically affordable, labour-intensive, easy to maintain with local skills and materials, and usable without complex energy or parts supplies.

The descriptors used to mark the portfolio: diagrams, terminology, application and analysis, key concept and evaluation for each commentary, plus rubric requirements for the whole portfolio.

The four groups of skills the IB assesses in Economics: knowledge and understanding (AO1), application and analysis (AO2), synthesis and evaluation (AO3), and the use of skills such as diagrams and calculations (AO4).

A situation in which one party to a transaction has more or better information than the other, leading to a misallocation of resources.

The situation in which a country does not trade with other countries and consumes only what it produces itself.

In the monetarist/new classical model, the process by which flexible wages and prices shift SRAS until the economy returns to the full employment level of output without government intervention.

Features of the tax and benefit system, such as progressive income taxes and unemployment benefits, that automatically dampen rises and falls in aggregate demand without any new government decision.

A bias in which people judge the likelihood or importance of an event by how easily examples come to mind, so recent, vivid or heavily reported events are overestimated.

Total cost per unit of output, found by dividing total cost by the quantity produced (AC = TC ÷ Q); also called average total cost.

A weighted average of the prices of all goods and services produced in an economy, measured by a price index; the variable on the vertical axis of an AD/AS diagram.

Total revenue per unit sold, found by dividing total revenue by the quantity sold (AR = TR ÷ Q); it equals the price, so the AR curve is the firm's demand curve.

Total tax paid as a percentage of total income: total tax divided by total income, multiplied by 100.

Total variable cost per unit of output, found by dividing total variable cost by the quantity produced (AVC = TVC ÷ Q).

A record of all economic transactions between the residents of a country and the rest of the world over a period of time, usually a year; it is made up of the current, capital and financial accounts.

The value of a country’s exports of goods minus the value of its imports of goods over a period of time.

The value of a country’s exports of services, such as tourism, transport, banking and insurance, minus the value of its imports of services over a period of time.

A government budget in which government revenue equals government spending over the year, so there is neither a deficit nor a surplus.

A clear conclusion that answers the question after weighing arguments on both sides, stating which matter most and under what conditions.

The cash that commercial banks hold and the deposits they keep at the central bank, which they use to settle payments with each other and to meet withdrawals.

Obstacles that make it difficult or impossible for new firms to enter a market, such as economies of scale, patents, licences, control of key resources or strong brand loyalty.

The reference year against which values in other years are compared in an index, given the value 100.

The three questions every economy must answer because of scarcity: what goods and services to produce and in what quantities, how to produce them, and for whom.

The representative collection of goods and services bought by a typical household, in fixed quantities or weights, whose cost is tracked to calculate a consumer price index.

The branch of economics that uses insights from psychology to study how people actually make decisions, including the biases and rules of thumb that make behaviour depart from full rationality.

Aid given directly by one donor government to a recipient country, as opposed to multilateral aid, which is channelled through international organisations funded by many governments.

A trade agreement between two countries, or between two trading blocs, that reduces barriers to trade between them.

The phase of the business cycle in which real GDP grows rapidly and rises above potential output, so unemployment is low and inflationary pressure builds.

The idea that people try to make rational decisions but are limited by incomplete information, limited time and limited ability to process information, so they choose satisfactory rather than best options.

The limited ability of people to carry out decisions in their long-term interest, because they give too much weight to immediate costs and benefits compared with future ones.

The idea that people are not purely self-interested but also care about fairness and others’ well-being, sometimes acting against their narrow interest to help others or punish unfairness.

The emigration of skilled and educated workers, such as doctors, nurses, engineers and graduates, from a country to work abroad, reducing the human capital available at home.

The amount by which a government’s total spending exceeds its total revenue over a period, usually a year; a flow that adds to government debt.

The amount by which government revenue exceeds government spending in a given year.

A store of a commodity that the government buys when supply is high to support the price and sells when supply is low to stop the price rising, to stabilise prices.

The degree of optimism firms feel about future sales, profits and economic conditions, which strongly influences how much they invest.

The short-term fluctuations of real GDP around its long-term growth trend, through phases of expansion, peak, contraction and trough.

A factor of production made up of man-made goods used to produce other goods and services, such as machinery, tools, buildings and infrastructure; its factor income is interest.

The part of the balance of payments that records capital transfers, such as debt forgiveness, and the buying and selling of non-produced, non-financial assets, such as brand names or land for embassies.

Government spending on investment in long-lasting productive assets, such as roads, railways, schools and hospitals, that add to the economy’s infrastructure.

The large-scale transfer of money and financial assets out of a country by residents or investors, often because of political or economic instability, expected depreciation, high taxes or the wish to hide illicit wealth.

A tax on the profit made when an asset, such as shares or property, is sold for more than it was bought for.

Income received from owning assets rather than from working, such as interest, dividends, rent and profit.

An economic system in which most factors of production are privately owned and goods and services are produced for profit and allocated mainly through markets.

The shift of production and emissions from a country with strict carbon pricing to countries with weaker rules, so that global emissions fall less than domestic emissions.

A tax on the carbon content of fossil fuels, or on each tonne of carbon dioxide emitted, intended to make polluters pay for the external cost of greenhouse gas emissions.

Borrowing in a currency with a low interest rate to buy assets in a currency with a higher interest rate, profiting from the interest rate difference as long as the exchange rate does not move against the trade.

A formal agreement between firms, or countries, to act together as if they were a single monopoly, usually by fixing prices or setting output quotas.

The institution that manages a country’s (or currency area’s) money supply and interest rates, issues its currency, acts as banker to the government and to commercial banks, and conducts monetary policy.

The situation where a central bank sets monetary policy free from day-to-day control by the government, so that decisions are not driven by short-term political goals.

Buying or selling of its own currency by a central bank on the foreign exchange market, using its reserves of foreign currency, to influence the exchange rate.

The interest rate at which the central bank lends to commercial banks, which sets the level of short-term interest rates in the economy; also called the base rate, policy rate, discount rate or refinancing rate.

The assumption that all other variables are held constant, so that the effect of a change in one variable on another can be studied on its own; Latin for “other things being equal”.

The key concept that the economy is never static: economic variables, institutions, technology and society constantly change, and economics studies the causes and effects of those changes.

The need to decide between alternative uses of scarce resources; because not every want can be met, every choice involves giving something up, which is its opportunity cost.

The way choices are presented to people, including the number and order of options, how they are described and which applies if a person does nothing, which influences decisions.

An economic system that designs out waste and pollution and keeps products and materials in use for as long as possible through reuse, repair, remanufacturing and recycling.

A model of the economy showing how money flows between households and firms as spending and factor incomes, with leakages from and injections into the flow.

The school of economic thought from Adam Smith to the mid-19th century, which held that free markets allocate resources efficiently and that the economy tends towards full employment on its own.

A good that is excludable but non-rivalrous, at least until it becomes congested, so it can be sold to members or subscribers, for example a streaming service.

A systematic, predictable error in thinking that leads people to make decisions different from those the rational choice model predicts.

The management of a common pool resource by its own users, who agree, monitor and enforce rules on its use without relying mainly on government or private ownership.

An agreement, formal or informal, between firms in a market to limit competition, for example by fixing prices, limiting output or sharing out customers.

Government rules backed by law that require or forbid certain behaviour by firms or consumers, such as bans, quotas, standards or age limits, enforced through penalties.

A word or phrase at the start of an exam question, such as define, explain or evaluate, that states exactly what kind of answer is wanted and how deep it must go.

A piece of writing of at most 800 words that applies economic theory, diagrams and one key concept to a recent news article and evaluates its economic implications.

A private financial institution that accepts deposits from households and firms and makes loans to them, earning profit from the difference between the interest it charges and the interest it pays.

A situation in which a country relies on one or a few primary commodities for a large share of its export earnings, output or government revenue, leaving it exposed to swings in world commodity prices.

Large and frequent rises and falls in the prices of primary commodities, caused mainly by shifts in demand or supply in markets where both are price inelastic.

The single set of tariffs that all members of a customs union apply to imports from countries outside the union.

A customs union that also allows the free movement of factors of production, mainly labour and capital, between member countries.

A natural resource that is rivalrous but non-excludable, such as fish in the open sea, groundwater or forests, so that it tends to be overused and depleted.

The ability of a country to produce a good at a lower opportunity cost, in terms of other goods given up, than another country.

The situation where producers can use the same resources to make one good or another, such as wheat or barley, so that producing more of one means producing less of the other.

Goods that are used together, so that a rise in the price of one reduces the demand for the other.

A single index that combines several different measures, such as income, health and education, into one number, so that a many-sided idea such as poverty or development can be measured.

The combined market share of the largest firms in a market, for example the four-firm concentration ratio (CR4), used to measure how far a market is dominated by a few firms.

A loan made on terms more favourable than market loans, with a below-market interest rate, a long repayment period or a grace period, often given to developing countries as aid.

A regular cash payment to low-income households made only if they meet conditions, such as sending their children to school or attending health clinics.

The conditions attached to loans from the IMF, the World Bank or other lenders, requiring the borrowing government to carry out specified policies, such as cutting a budget deficit or privatising firms.

The situation where each extra unit of one good costs the same amount of the other good given up, because resources are equally suited to both; shown by a straight-line PPC.

The degree of optimism households feel about the economy and their own future incomes and jobs, which affects how much of their income they spend rather than save.

An index measuring the change in the cost of a fixed, weighted basket of goods and services bought by a typical household, compared with a base year set at 100.

The difference between the highest price consumers are willing and able to pay for a good and the price they actually pay; the area below the demand curve and above the price.

Spending by households on final goods and services, both durable and non-durable; the largest component of aggregate demand in most economies.

An arrangement in which the government pays a private firm, usually chosen by competitive tender, to supply a good or service that the government still funds and is responsible for.

A cut in government spending, an increase in taxes, or both, intended to reduce aggregate demand or a budget deficit; when aimed mainly at the deficit it is often called austerity.

Monetary policy that raises interest rates or reduces the money supply to lower aggregate demand, used to close an inflationary gap and reduce inflation.

A measure of inflation that excludes the most volatile prices, usually food and energy, to show the underlying trend in the general price level.

A direct tax on the profits of companies.

A business objective in which a firm aims to act in the interests of society and the environment as well as its owners, for example by cutting pollution or treating workers fairly.

A statistical relationship in which two variables tend to move together; correlation alone does not prove that a change in one causes the change in the other.

The abuse of public office or entrusted power for private gain, such as bribery, embezzlement of public funds, or giving contracts and jobs to friends and relatives.

Inflation caused by increases in costs of production, such as wages, energy, raw materials or imported inputs, which shift the short-run aggregate supply curve to the left.

A method of appraising a project by placing money values on all its expected private and external costs and benefits over time, used to decide whether, and how much of, a public good to provide.

The payments a firm makes for the factors of production and other inputs it uses, such as wages, rent, raw materials and energy.

A demand-side policy that acts against the business cycle, raising aggregate demand in a downturn and reducing it in a boom, to reduce fluctuations in output.

A transaction recorded with a plus sign in the balance of payments because it brings money into the country, such as export revenue or an inflow of foreign investment.

An assessment by a rating agency of how likely a borrower, such as a government, is to repay its debts in full and on time; a lower rating raises borrowing costs.

The fall in private sector spending, especially investment, that occurs when increased government borrowing raises interest rates, reducing the effect of expansionary fiscal policy on aggregate demand.

The part of the balance of payments that records trade in goods, trade in services, income flows and current transfers between a country’s residents and the rest of the world.

The situation where the debits on the current account (payments for imports, income paid abroad and transfers sent abroad) are greater than its credits over a period of time.

The situation where the credits on the current account (export revenue, income received from abroad and transfers received) are greater than its debits over a period of time.

Government spending on the day-to-day running of the public sector and on goods and services used up within the year, such as public sector wages and medicines.

Payments between countries for which nothing is received in return and that are not for investment, such as workers’ remittances, foreign aid for consumption and contributions to international organisations.

A trading bloc whose members eliminate trade barriers between themselves and apply a common external tariff to imports from non-members.

Unemployment caused by a fall in aggregate demand in the downturn of the business cycle, when firms need fewer workers to produce a lower level of output.

A transaction recorded with a minus sign in the balance of payments because money leaves the country, such as spending on imports or investment abroad by residents.

The cancellation, reduction or rescheduling of a country's debts by its creditors, lowering the amount owed or the payments due so that resources can be used for development.

The payments of interest (and repayments of principal) that a government must make on its outstanding debt in a period.

A situation in which real GDP grows while resource use or pollution, such as carbon dioxide emissions, stays the same or falls.

An option that applies automatically unless a person actively chooses a different one, for example being enrolled in a pension scheme unless the worker opts out.

A sustained fall in the general (average) level of prices in an economy over time, so that the inflation rate is negative.

The situation where equilibrium real GDP is below the full employment level of output, so resources are unemployed and there is cyclical unemployment; also called a recessionary gap.

The quantities of a good or service that consumers are willing and able to buy at each possible price during a given time period, ceteris paribus.

A graph showing the quantity demanded of a good at each possible price, ceteris paribus; it normally slopes downwards from left to right.

The quantity of money (cash and bank deposits) that households and firms wish to hold at each interest rate; it is higher at lower interest rates because the opportunity cost of holding money is lower.

A table listing the quantity of a good demanded at each of a range of prices, for one consumer or for the whole market, ceteris paribus.

A sudden, unexpected change in one or more components of aggregate demand that shifts the AD curve, such as a collapse in exports or in consumer confidence.

Inflation caused by increases in aggregate demand, when total spending grows faster than the economy’s capacity to produce, especially near full employment.

A good or service that is more harmful to people than they realise, such as cigarettes or alcohol, so it is overconsumed in a free market; it often has negative consumption externalities.

A government-backed guarantee that bank depositors will be repaid up to a set limit if their bank fails, which prevents bank runs but can create moral hazard.

A fall in the value of a currency in a floating exchange rate system, caused by market forces, so that one unit buys less of another currency.

The removal or reduction of government rules that restrict how firms operate or who may enter a market, intended to increase competition and efficiency.

Demand for a factor of production that comes from the demand for the goods and services it helps to produce, such as the demand for builders arising from the demand for new homes.

The factors that decide how price elastic demand for a good is: the number and closeness of substitutes, the degree of necessity, the proportion of income spent on it, and time.

A decision by the government or central bank to lower the value of its currency in a fixed (or managed) exchange rate system.

Longer-term assistance aimed at raising living standards and productive capacity, for example by funding schools, clinics, roads, water systems, agricultural research or government reforms.

The supply of goods or services by the government itself, financed from tax revenue and usually provided free or at a low price, such as state schools and public hospitals.

A tax paid directly to the government by the person or firm on whom it is levied, on their income, profits or wealth, such as personal income tax, corporate income tax or wealth tax.

Deliberate changes in government spending or tax rates, decided by the government, to influence aggregate demand.

Treating people less favourably because of a characteristic unrelated to their productivity, such as gender, race, ethnicity, religion, age or disability, for example in hiring, pay, promotion or access to credit.

Rises in long-run average cost that occur when a firm grows beyond a certain size, for example because of problems with coordination, communication and motivation.

A situation in a market where quantity demanded and quantity supplied are not equal at the current price, so there is excess demand or excess supply and pressure for the price to change.

A fall in the rate of inflation, so that the general price level continues to rise but more slowly than before.

Household income after direct taxes have been paid and transfer payments received; the income households have available to spend or save.

The way a country’s total income is shared between individuals or households over a period, usually a year.

The way the total stock of assets in an economy, net of debts, is shared between individuals or households at a point in time.

The widening of the range of goods and services an economy produces and exports, so that it relies less on a small number of products, especially primary commodities.

The splitting of a production process into many small tasks, each done by a different worker who specialises in it, which raises output per worker.

The equilibrium price in a country's market without international trade, set where domestic demand equals domestic supply.

A strategy that gives a player the best payoff whatever strategy the other player chooses.

The error of counting the value of an intermediate good more than once, both on its own and again as part of the price of the final good.

Kate Raworth’s model in which the goal of an economy is to meet everyone’s basic needs (the social foundation) without overshooting the planet’s environmental limits (the ecological ceiling).

The sale of a good in a foreign market at a price below the price charged in the producer’s home market or below its cost of production.

The decline of other export and import-competing industries, especially manufacturing, after a natural resource export boom raises the exchange rate and draws labour and capital into the resource sector.

The area of biologically productive land and sea needed to produce the resources a person or population consumes and to absorb the waste it produces, measured in global hectares.

A broad improvement in people’s economic well-being and quality of life, including higher incomes, better health and education, less poverty and greater freedom of choice.

A good that is scarce, so its production or use has an opportunity cost, whether or not consumers pay a price for it.

An increase in the real output of goods and services in an economy over time, measured as the percentage change in real GDP (or real GDP per capita), usually over a year.

Differences in the way income or wealth is shared out between individuals or households in an economy; the larger the differences, the greater the inequality.

The process by which countries reduce or remove barriers to the movement of goods, services, capital and labour between them and coordinate their economic policies.

A simplified representation of part of the economy, in words, diagrams or equations, that keeps only the variables thought to matter most in order to explain and predict behaviour.

The way a society organises the ownership of resources and makes decisions about what, how and for whom to produce, ranging from free market to planned economies.

A general explanation of how part of the economy works, built from linked hypotheses and assumptions, that has been tested repeatedly against evidence and not yet refuted.

The level of prosperity and quality of life of people, including financial security, the ability to meet basic needs and to make choices that bring satisfaction.

A country with relatively low income per capita and low levels of development in health, education and living standards, compared with economically more developed countries.

A country with high income per capita, high levels of development in health, education and living standards, and a broad mix of manufacturing and service industries.

The social science that studies how individuals, firms, governments and societies choose to use scarce resources to satisfy their needs and wants, and the consequences of those choices.

Falls in long-run average cost that occur as a firm increases its scale of production, for example through specialisation, bulk buying or cheaper finance.

Government campaigns and information that change people’s knowledge of a good’s costs or benefits, so as to raise demand for merit goods and lower demand for demerit goods.

Making the best possible use of scarce resources, so that the greatest useful output is obtained from given inputs, or the output society values most is produced with the least waste.

A measure of how responsive one economic variable is to a change in another, calculated as the percentage change in the first divided by the percentage change in the second.

A complete ban on trade with a particular country, or on trade in a particular good, usually imposed for political or security reasons.

Information gained from observation, measurement or experiment in the real world, such as statistics or survey results, used to test hypotheses and theories.

A disease that is constantly present in a population or region, such as malaria in much of sub-Saharan Africa, reducing health, working capacity and school attendance year after year.

Measures of development based on energy, such as the share of the population with access to electricity or clean cooking fuels and energy consumption per person.

A curve showing the relationship between consumers' income and the quantity demanded of a good, with all other influences on demand held constant.

A factor of production consisting of the ability to organise the other factors of production, take risks and start new businesses or ideas; its factor income is profit.

The deterioration of the environment through the depletion of natural resources such as soil, water, forests and fish stocks, and through pollution and the loss of ecosystems.

Measures of the environmental side of development, such as carbon dioxide emissions per person, forest area, access to clean water or the depletion of natural resources.

A hypothesis that environmental damage per person first rises and then falls as real GDP per capita increases, giving an inverted-U relationship.

The situation in which people have the same amount of something, such as income, wealth or opportunities; a measurable, positive idea, unlike equity, which concerns fairness.

The interest rate at which the quantity of money demanded equals the money supply set by the central bank, shown where the money demand and money supply curves intersect.

Fairness in the distribution of income, wealth or opportunities; a normative idea that is different from equality, which means everyone having the same.

The weighing of the strengths and limitations of an argument, theory or policy to reach a reasoned judgment supported by evidence.

The gap between the output a firm in monopolistic competition produces in long-run equilibrium and the output at which its average cost would be lowest.

The situation where, at the current price, quantity demanded is greater than quantity supplied; it arises when the price is below the equilibrium price.

The situation where, at the current price, quantity supplied is greater than quantity demanded; it arises when the price is above the equilibrium price.

Government limits on the amount of foreign currency that residents and firms may buy or take out of the country, used to reduce pressure on a fixed or managed exchange rate.

The price of one currency expressed in terms of another currency, for example US$1.30 per pound.

Describes a good from which people who do not pay can be prevented from benefiting, for example by charging an entry price.

An increase in government spending, a cut in taxes, or both, intended to increase aggregate demand; it usually increases a budget deficit or reduces a surplus.

Monetary policy that lowers interest rates or increases the money supply to raise aggregate demand, used to close a deflationary gap and reduce unemployment.

A method of measuring national income by adding up all spending on final goods and services produced in the economy: GDP = C + I + G + (X − M).

Policies that aim to reduce a current account deficit by lowering total spending in the economy, including spending on imports, through contractionary fiscal or monetary policy.

Policies that aim to switch spending by domestic residents and foreigners away from imports and towards domestically produced goods and services, such as protectionism or a lower exchange rate.

A growth strategy in which the government encourages firms to produce for world markets, using a competitive exchange rate, export credit, tax incentives, special economic zones and investment in infrastructure and skills.

A government payment to domestic producers, per unit produced or exported, that lowers their costs so that they can compete with imports or sell more abroad.

Goods and services produced in one country and sold to buyers in other countries; export revenue is an injection into the circular flow of income.

A cost or benefit of producing or consuming a good that falls on a third party not directly involved in the transaction and is not reflected in the market price.

The quantity and quality of the factors of production a country has, such as land, natural resources, labour, skills and capital, which shape its comparative advantage.

The payments households receive for supplying factors of production: rent for land, wages for labour, interest for capital and profit for entrepreneurship.

The resources used to produce goods and services, grouped into four categories: land, labour, capital and entrepreneurship.

A certification system in which producers in developing countries receive a guaranteed minimum price and a premium for community projects when they meet labour, environmental and organisational standards.

The part of the balance of payments that records flows of investment into and out of a country: foreign direct investment, portfolio investment, other loans, official borrowing and changes in reserve assets.

The situation in which individuals and firms, including those on low incomes, have access to useful and affordable financial services such as payments, savings, credit and insurance.

Banks and other financial institutions that take in savings from households and firms and lend them to borrowers, for example to finance investment.

Businesses that hire factors of production from households and use them to produce and sell goods and services.

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

A lasting legal or constitutional limit on a government’s budget, such as a maximum deficit or debt as a percentage of GDP, intended to keep the public finances sustainable.

Costs of production that do not change with the level of output in the short run, such as rent, insurance and interest on loans; they must be paid even if output is zero.

An exchange rate system in which the government or central bank sets the value of its currency against another currency or a basket of currencies and keeps it there by intervening in the foreign exchange market.

An exchange rate system in which the value of a currency is set by the demand for and supply of it on the foreign exchange market, with no government or central bank intervention.

The transfer of resources, such as money, goods, technical help or concessional loans, from governments, international organisations or charities in richer countries to poorer countries to promote development or relieve suffering.

Investment by a firm in one country to set up, buy or expand a lasting business operation in another country in which it has a controlling interest (usually at least 10% of the voting shares).

Foreign currencies, which a country earns mainly from exports and inflows of capital and needs in order to pay for imports and foreign debts.

The global market in which currencies are bought and sold, and where floating exchange rates are determined by demand and supply.

Holdings of foreign currencies and other liquid foreign assets kept by a central bank, which it can use to buy its own currency and support the exchange rate.

Firms, households and governments in other countries that buy a country’s exports and sell it imports.

Communication by a central bank about the likely future path of its policy rate, used to shape expectations and longer-term interest rates.

A bias in which people’s decisions are influenced by the way information or options are presented, rather than only by the information itself.

A good that is not scarce, so it has no opportunity cost: using more of it does not mean giving up anything else, such as air or seawater.

An economic system in which resources are privately owned and the basic economic questions are answered by consumers and firms through the price mechanism, with little government intervention.

The right of workers from one member country of a common market to live and work in any other member country without needing a work permit.

The situation in which people benefit from a good without paying for it, because they cannot be excluded, so private firms cannot collect enough revenue and the good is under-provided or not provided.

International trade that takes place without government-imposed barriers such as tariffs, quotas, subsidies or administrative restrictions.

A trading bloc whose members eliminate tariffs and quotas on trade between themselves, while each member keeps its own separate trade barriers against non-members.

Short-term unemployment of people who are between jobs or entering the labour market and are searching for suitable work.

The situation where the only unemployment is the natural rate (structural, frictional and seasonal unemployment), so there is no cyclical unemployment and the economy produces its potential output.

A correctly drawn and fully labelled diagram whose changes, such as shifts, new equilibria and shaded areas, are referred to and explained step by step in the written answer.

Consumers’ or producers’ beliefs about what the price of a good will be in the future, which affect how much they buy or sell today.

The increase in total output and consumption that countries obtain when they specialise according to comparative advantage and trade with each other.

The study of strategic decision-making by interdependent players, where the outcome for each player depends on its own choices and on the choices of the others.

A price index measuring the average price of all goods and services in GDP relative to a base year (= 100), used to convert nominal values into real values.

Unequal treatment of, or opportunities for, people because of their gender, for example in education, health care, employment, pay, property, finance and political power, usually to the disadvantage of women and girls.

A composite indicator published by the UNDP that measures inequality between women and men in reproductive health, empowerment and labour market participation, from 0 (equality) to 1.

The difference between the average (usually median) earnings of men and women, expressed as a percentage of men’s earnings.

A rare type of inferior good, usually a staple food for very poor households, for which a rise in price leads to a rise in quantity demanded because the income effect outweighs the substitution effect.

A measure of inequality equal to the area between the line of perfect equality and the Lorenz curve divided by the whole area under that line; it ranges from 0 (perfect equality) to 1.

The sequence of stages that turns inputs into a final product, from design to assembly and sale, when the stages are carried out in several different countries.

The growing integration and interdependence of the world's economies through rising flows of goods, services, capital, labour, technology and ideas across borders.

The exercise of political authority in a way that is accountable, transparent, effective and responsive to citizens, with the rule of law, protected rights and low corruption.

A financial asset issued by a government to borrow money, which pays the holder interest and repays the amount borrowed on a set date.

The government’s plan of revenue and spending for a year; the budget balance is government revenue minus government spending.

The total amount owed by a government as a result of past borrowing, equal to accumulated past budget deficits minus surpluses; a stock, often expressed as a percentage of GDP.

The situation where a government intervention leads to a less efficient allocation of resources, or a worse outcome, than the market would have produced without it.

The income a government receives, mainly from direct and indirect taxes, but also from fees, sales of goods and services, and the profits of state-owned enterprises.

Spending by the government on goods and services, such as public-sector wages, health care, education and infrastructure; it excludes transfer payments such as pensions and unemployment benefits.

The severe worldwide economic slump of the 1930s, in which output fell sharply and unemployment reached about a quarter of the US labour force in 1933.

GDP adjusted for environmental costs by subtracting the estimated value of resource depletion and environmental damage caused by economic activity.

The total market value of all final goods and services produced within a country’s borders over a period of time, usually a year, whoever owns the factors of production.

The total income earned by a country’s residents over a period of time, wherever it is earned: GDP plus income earned abroad by residents minus income paid to non-residents.

The business objective of increasing a firm’s size, measured by sales, output, assets or employees, through internal expansion or by merging with or taking over other firms.

An increase in an economy's capacity to produce, from more or better factors of production or improved technology, shown as an outward shift of the PPC.

A measure of sustainable well-being combining life expectancy and self-reported well-being, divided by the ecological footprint, showing how efficiently countries turn resources into long, happy lives.

Information about the quality or risk of a good, service or person that one party to a transaction has and the other cannot observe before agreeing to trade.

Unemployment not shown in official figures, such as discouraged workers who have stopped looking for work or people placed on sickness benefits or early retirement who would work if jobs were available.

Products that are identical in the eyes of buyers, so that a buyer has no reason to prefer one seller's product to another's except on price.

Short-term financial capital that moves quickly between countries in search of the highest interest rate or an expected exchange rate gain.

The total amount households owe to lenders, such as mortgages, credit card debt and other loans; high indebtedness means a larger share of income goes on repayments and interest.

Individuals or groups of people living together who own the factors of production, sell their services to firms for factor incomes and buy goods and services as consumers.

The skills, knowledge, education, training and health of the labour force, which raise the productivity of workers.

A composite indicator published by the UNDP that combines life expectancy at birth, mean and expected years of schooling, and GNI per capita at PPP into one index between 0 and 1.

Short-term emergency assistance, such as food, water, shelter and medical care, given to save lives and reduce suffering after natural disasters, famines, epidemics or conflicts.

Extremely high and accelerating inflation, often defined as more than 50% a month, in which money rapidly loses almost all its value.

A testable statement about the relationship between two or more variables, proposed as a possible explanation and checked against empirical evidence.

Any market structure between perfect competition and pure monopoly, such as oligopoly and monopolistic competition, in which firms have some market power and are price makers.

A situation in which consumers or producers lack full or accurate knowledge of the prices, quality or characteristics of goods, so their decisions may not maximise utility or profit.

A strategy of protecting domestic industries from foreign competition with tariffs, quotas and other barriers, so that goods previously imported are produced at home instead.

Inflation caused by higher prices of imported goods and raw materials, often after a depreciation or devaluation of the domestic currency.

Goods and services produced in other countries and bought by residents of the home country; spending on imports is a leakage from the circular flow of income.

The role of prices in motivating consumers and producers to change their behaviour, for example a higher price encouraging firms to produce more and consumers to buy less.

Rewards or penalties, often financial, that influence the decisions of economic agents, such as the higher take-home pay that encourages people to work more or firms to invest.

The current account item that records income earned by residents from abroad (wages, interest, profits and dividends) minus income paid to non-residents.

A method of measuring national income by adding up all incomes earned by the factors of production (wages, rent, interest and profit), excluding transfer payments.

The change in quantity demanded that results from a change in consumers’ real income (purchasing power) when the price of a good changes.

Demand for which the percentage change in quantity demanded is larger than the percentage change in income, so that YED is greater than 1; typical of luxury goods and many services.

A measure of the responsiveness of the demand for a good to a change in consumers' income, ceteris paribus: the percentage change in quantity demanded divided by the percentage change in income.

Demand for which the percentage change in quantity demanded is smaller than the percentage change in income, so that YED lies between 0 and 1; typical of necessities.

One-fifth (20%) of a population ranked by income, from the poorest fifth (the first quintile) to the richest fifth (the fifth quintile).

The situation where each extra unit of one good costs more and more of the other good given up, because resources are not equally suited to both; shown by a PPC bowed outwards.

The condition of owing large debts, especially foreign-currency debt to foreign lenders, whose interest and repayments take a large share of a country's income, export earnings or government revenue.

A tax on spending on goods and services, paid to the government by the seller, which raises firms' costs and shifts the supply curve upwards.

Government policy that supports the growth of particular industries or sectors judged important for the economy, using tools such as subsidies, tax credits, public investment, protection or state ownership.

A situation in which people’s chances of achieving a high income or good standard of living depend on circumstances they did not choose, such as parents’ income, gender, ethnicity or place of birth.

The Human Development Index adjusted for inequality in the distribution of health, education and income within a country; the gap between it and the HDI shows the loss caused by inequality.

A new industry that has not yet reached the size or experience needed to match the low average costs of established foreign competitors, and so cannot yet compete without temporary protection.

The number of children who die before their first birthday per 1,000 live births in a year; the under-five mortality rate counts deaths before the age of five.

A good for which demand falls when consumers’ incomes rise and rises when incomes fall, ceteris paribus, usually because buyers switch to better-quality alternatives.

A sustained increase in the general (average) level of prices in an economy over time, usually measured as the percentage change in a consumer price index.

A monetary policy framework in which the central bank publicly commits to keeping inflation at, or within a range around, a stated rate, usually about 2% a year, over the medium term.

The situation where equilibrium real GDP is above the full employment level of output, so unemployment is below its natural rate and there is upward pressure on the price level.

Economic activity that is not registered with or regulated by the government and is not recorded in official statistics, such as unregistered trading and cash-in-hand work.

The situation where consumers or producers lack the information they need to make choices that serve their own interest, such as underestimating the harm from smoking.

The physical capital an economy needs to function, such as roads, railways, ports, energy networks, telecommunications, and water and sanitation systems, often provided or financed by the government.

Wealth passed from one person to another, usually from parents to children, on the death of the owner, together with large gifts made during life.

Spending added to the circular flow of income that does not come from households’ consumption: investment, government spending and export revenue.

The formal and informal rules and organisations, such as the legal system, property rights, tax system, banking system and civil service, within which economic activity takes place.

The way individuals, firms, governments and countries depend on each other, so that the decisions of one economic actor affect others, often in ways they did not intend.

The price of borrowing money, or the reward for saving it, expressed as a percentage of the sum borrowed or saved per year.

The difference between the interest rates in two countries, a major influence on short-term financial flows and so on the exchange rate between their currencies.

Fairness in the distribution of resources and well-being between present and future generations, so that people alive today do not gain at the expense of people who will live later.

The coursework part of IB Economics, marked by the teacher and moderated by the IB: a portfolio of three commentaries, worth 30% of the final grade at SL and 20% at HL.

Treaties or accords between countries in which they agree to take joint action, such as limiting emissions, on problems that no single country can solve alone.

The ability of a country's firms to sell goods and services in world markets, which depends on the relative price and quality of its output, including unit labour costs and the exchange rate.

An international institution, founded in 1944, that promotes global monetary and financial stability, monitors member economies and lends to countries facing balance of payments crises, usually with policy conditions.

An income or consumption threshold set by the World Bank in dollars a day at purchasing power parity, below which a person is counted as extremely poor; $3.00 a day (2021 prices) since June 2025.

The exchange of goods and services across national borders, through exports sold to other countries and imports bought from them.

Government involvement in markets or the economy, through laws, regulations, taxes, spending or direct provision, usually to correct market outcomes or pursue goals such as equity.

Supply-side policies in which the government acts directly to raise productive capacity, for example by spending on education, training, health care, research and development, infrastructure or industrial policy.

Spending by firms on capital goods, such as machinery, equipment, buildings and software, that are used to produce other goods and services; it also includes households’ purchases of new housing.

Adam Smith’s image for the way individuals pursuing their own self-interest in competitive markets are guided by prices to promote the interests of society, without intending to.

The pattern in which a current account balance first worsens after a depreciation or devaluation, because demand for exports and imports is price inelastic in the short run, and then improves as demand becomes more elastic.

The situation where producing one good automatically produces another, such as beef and leather, so that a rise in the supply of one increases the supply of the other.

One of the nine key concepts used to frame a commentary's analysis of its article; each commentary in a portfolio must use a different one, assessed under criterion D.

The nine central ideas that run through IB Economics: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence and intervention.

The Keynesian view of aggregate supply: a curve that is horizontal when there is much spare capacity, slopes upwards as output nears capacity, and becomes vertical at the full employment level of output.

The school of thought based on John Maynard Keynes’s work, which holds that insufficient aggregate demand can keep an economy below full employment for long periods, so governments should actively manage demand.

The ratio of the final change in real GDP to the initial change in an injection (investment, government spending or exports) that caused it; equal to 1 ÷ (1 − MPC) or 1 ÷ (MPS + MPT + MPM).

A factor of production consisting of the physical and mental effort that people put into producing goods and services; its factor income is wages.

All people of working age who are either employed or unemployed, that is, without a job but willing, able and actively looking for work.

The labour force (the employed plus the unemployed) as a percentage of the working-age population.

The ease with which wages, hours and the number of workers adjust to changes in economic conditions, including how easily firms can hire and dismiss workers.

The proportion of a country’s total income, usually GDP, that is paid to workers as wages, salaries and other employee compensation rather than to owners of capital.

An organisation of workers that bargains collectively with employers over wages, working conditions and other terms of employment on behalf of its members.

The view that governments should intervene as little as possible in markets and leave economic decisions to individuals and firms; French for “let do” or “leave alone”.

A factor of production covering all natural resources, including the land surface, minerals, forests, fish stocks, water and the climate; its factor income is rent.

Legally recognised and secure rights of individuals, families or communities to occupy, use, transfer and benefit from land, often shown by a registered title or certificate.

A country with no coastline, whose foreign trade must pass by land through at least one neighbouring transit country to reach a seaport.

The principle that, ceteris paribus, as the price of a good rises the quantity demanded falls, and as the price falls the quantity demanded rises: an inverse relationship.

The principle that, in the short run, as more units of a variable factor are added to a fixed factor, the extra output from each additional unit of the variable factor eventually falls.

The principle that, as a consumer consumes more units of a good in a given period, the additional satisfaction gained from each extra unit eventually falls.

The principle that, ceteris paribus, as the price of a good rises the quantity supplied rises, and as the price falls the quantity supplied falls: a positive relationship.

Income taken out of the circular flow of income rather than spent on domestic goods and services: saving, taxes and spending on imports.

A government requirement that producers or professionals meet set standards and hold a permit before they may sell a product or practise, which gives buyers an assurance of minimum quality.

The average number of years a newborn baby would live if the patterns of mortality at the time of its birth stayed the same throughout its life.

The 45-degree line on a Lorenz diagram along which each percentage of the population receives the same percentage of income, showing a perfectly equal distribution.

The period of time in which all factors of production can be varied, so firms can change their scale of production and firms can enter or leave a market.

In the monetarist/new classical model, the total output an economy produces when all wages and prices have fully adjusted; a vertical line at the full employment level of output (potential output).

A curve showing the cumulative percentage of total income or wealth received by each cumulative percentage of the population, ranked from the poorest to the richest.

The situation in which total revenue is less than total economic cost, so the firm earns less than normal profit; shown by average revenue below average cost (AR < AC).

The tendency for people to feel a loss more strongly than a gain of the same size, so they act to avoid losses more than to achieve equal gains.

The reduction in a country’s ability to make its own economic decisions, such as setting tariffs, standards or monetary policy, when it accepts the shared rules of a trading bloc or monetary union.

A normal good with income elastic demand, so that YED is greater than 1 and spending on it rises faster than income.

The situation where aggregate demand equals aggregate supply, which determines the economy’s average price level and real GDP; in the short run it occurs where AD meets SRAS.

The branch of economics that studies the economy as a whole, including total output, unemployment, inflation, economic growth and the effects of government policies on them.

An exchange rate system in which the currency floats, but the central bank intervenes from time to time to keep it within a band or to limit large or rapid changes in its value.

A form of choice architecture in which people must state their decision before they can proceed, so they cannot avoid the choice and no option is preselected.

A good produced in the secondary sector by processing raw materials and components, such as a car, a smartphone or a chocolate bar.

Decision-making that compares the additional (marginal) benefit of one more unit of an activity with its additional cost, rather than comparing totals or averages.

The additional benefit consumers receive from consuming one more unit of a good, measured by the maximum price they are willing to pay for it; shown by the demand curve.

The additional cost to a firm of producing one more unit of output.

The extra benefit to a consumer of consuming one more unit of a good; the demand curve shows it.

The extra cost to a producer of producing one more unit of a good; in a competitive market the supply curve shows it.

The additional output produced when one more unit of a variable factor of production, such as one more worker, is employed.

The proportion of an increase in income that is spent on domestically produced goods and services; MPC = ΔC ÷ ΔY.

The proportion of an increase in income that is spent on imported goods and services; MPM = ΔM ÷ ΔY.

The proportion of an increase in income that is saved rather than spent; MPS = ΔS ÷ ΔY.

The proportion of an increase in income that is paid to the government in taxes; MPT = ΔT ÷ ΔY.

The additional revenue a firm earns from selling one more unit of output (MR = ΔTR ÷ ΔQ).

The total extra benefit to society of consuming one more unit of a good: marginal private benefit plus any marginal external benefit.

The total extra cost to society of producing one more unit of a good: marginal private cost plus any marginal external cost.

The percentage of each additional unit of income that is paid in tax: the change in tax paid divided by the change in income, multiplied by 100.

The additional satisfaction (utility) a consumer gains from consuming one more unit of a good or service.

One of the levels of performance used to mark extended answers, each describing the qualities an answer must show to earn the range of marks in that level.

Any arrangement through which buyers and sellers exchange a good, service or factor of production, physically or online, at a price.

The total quantity of a good demanded by all consumers in a market at each price, found by adding the quantities that individual consumers demand at that price.

The situation in a market where quantity demanded equals quantity supplied, so there is no tendency for the price or the quantity traded to change; it occurs at the market-clearing price.

The situation where a free market fails to allocate resources efficiently, so that too much or too little of a good is produced and consumed compared with the socially optimal output.

George Akerlof’s 1970 model of a market where buyers cannot tell good products from bad ones, so they pay only an average price, good-quality sellers withdraw and the market shrinks or collapses.

The market in which savers supply funds and borrowers (firms, households and the government) demand them; the real interest rate brings the two into equilibrium.

The ability of a firm to influence the price of the good it sells, by changing its output or its price, rather than accepting the price set by the market.

The percentage of total sales in a market, by value or volume, accounted for by one firm; as an objective, increasing it even at the expense of short-term profit.

The characteristics of a market that shape how firms behave in it, such as the number and size of firms, how similar their products are and how easily new firms can enter.

The total quantity of a good supplied by all producers in a market at each price, found by adding the quantities that individual firms supply at that price.

Supply-side policies that raise productive capacity by letting markets work more freely, through more competition, more flexible labour markets and stronger incentives, such as deregulation, privatisation and tax cuts.

The marking guidance written for a specific exam paper, listing the points, diagrams and working that earn marks for each question.

The condition that a depreciation or devaluation improves the current account balance only if the sum of the price elasticities of demand for exports and imports is greater than one.

Karl Marx’s criticism of capitalism and of classical economics: workers are exploited because owners of capital keep the surplus value their labour creates, leading to inequality and recurring crises.

The number of women who die from causes related to pregnancy or childbirth per 100,000 live births in a year.

A transfer payment made only to people whose income or wealth is below a set level, so that support is targeted at those most in need.

The costs to firms of changing their prices, such as reprinting price lists and updating systems, which rise when inflation is high.

A good or service that is better for people than they realise, such as education or healthcare, so it is underconsumed in a free market; it often has positive consumption externalities.

The branch of economics that studies the behaviour of individual decision-makers, such as consumers, firms and workers, and how individual markets and industries work.

The provision of small loans, savings accounts, insurance and other financial services to people on low incomes who lack access to ordinary banks, often without collateral and through group lending.

Eight international development goals agreed in 2000, with targets for 2015, focused on reducing extreme poverty, hunger, disease and illiteracy in developing countries.

The income a particular type of household needs for a minimum acceptable standard of living, found by pricing a basket of goods and services that members of the public agree is necessary.

The minimum proportion of deposits that commercial banks must legally hold as reserves (cash or deposits at the central bank) rather than lend out.

A price floor in the labour market: the lowest wage rate per hour that employers may legally pay workers, usually set above the market equilibrium wage.

An economic system that combines a market sector, where private firms and consumers make decisions through prices, with a public sector, where the government owns resources, provides services and regulates markets.

Financial services such as storing money, sending and receiving payments, paying bills and saving, carried out through a mobile phone, often without a bank account and using local cash agents.

The ease with which factors of production, such as labour and capital, can be moved from one use, firm or place to another; greater mobility makes supply more price elastic.

The process by which the IB re-marks a sample of a school's internally assessed work and adjusts the teacher's marks if they are too generous or too harsh.

The school of thought, led by Milton Friedman, which holds that inflation is caused by the money supply growing faster than output, so governments should control money growth rather than manage demand actively.

A demand-side policy in which the central bank changes interest rates, the money supply or credit conditions to influence aggregate demand and reach goals such as low and stable inflation.

The chain of effects by which a change in the central bank’s policy rate spreads through other interest rates, asset prices, the exchange rate and expectations to aggregate demand, output and inflation.

A group of countries that share a single currency and a common central bank that sets one monetary policy, including one interest rate, for all members.

Anything generally accepted as payment for goods and services; it serves as a medium of exchange, a unit of account, a store of value and a standard of deferred payment.

The process by which commercial banks increase the money supply by making loans, since each new loan creates a new deposit; also called credit creation.

The maximum increase in total bank deposits that can result from an initial new deposit, equal to one divided by the reserve requirement ratio.

The total quantity of money in an economy at a point in time, made up of notes and coins held by the public plus deposits in commercial banks.

A market structure with many firms selling differentiated products, with free entry and exit, so that each firm has a small degree of market power.

A market structure in which a single firm, or one dominant firm, supplies the whole market for a product with no close substitutes, protected by high barriers to entry.

A form of asymmetric information arising after a transaction, in which one party takes more risk or less care because another party bears part of the cost and cannot fully observe its behaviour.

The WTO rule that any trade advantage a member gives to one country, such as a lower tariff, must be given immediately to all other WTO members.

A change in the quantity demanded caused only by a change in the good’s own price, shown as a move from one point to another on the same demand curve.

A change in the quantity supplied caused only by a change in the good’s own price, shown as a move from one point to another on the same supply curve.

A composite poverty measure counting people as poor if deprived in at least one-third of ten weighted indicators of health, education and living standards; it combines the share of people poor with the intensity of their deprivation.

Aid, loans and technical support given to developing countries by international organisations funded by many member governments, such as the World Bank, the IMF and regional development banks.

A trade agreement among many countries across the world, usually negotiated through the World Trade Organization, whose terms apply equally to all of them.

A firm that owns or controls production in more than one country, for example through factories, mines, offices or subsidiaries abroad.

An outcome of a game in which no player can improve its payoff by changing its strategy, given the strategy chosen by the other player.

The system of measuring the total value of an economy’s output, income and expenditure over a period of time, usually a quarter or a year.

The argument that industries producing goods vital to a country’s defence or survival in a crisis, such as weapons, energy, food or advanced technology, should be protected from foreign competition.

The stock of natural resources, such as soil, forests, water, fish stocks, minerals and the atmosphere, that provides a flow of goods and services to the economy over time.

A real-world event, such as a policy change in one place but not a similar neighbouring one, that lets economists compare an affected group with an unaffected one as if in a controlled experiment.

A market in which long-run average cost falls over the whole range of market demand, so one firm can supply the market at a lower average cost than two or more firms could.

The rate of unemployment when the economy is at full employment output: the sum of structural, frictional and seasonal unemployment, with no cyclical unemployment.

A normal good with income inelastic demand, so that YED lies between 0 and 1 and spending on it rises more slowly than income.

Needs are the goods and services required for survival, such as food, water and shelter; wants are everything else people desire beyond those needs.

A cost of producing or consuming a good that falls on third parties and is not paid for by the producer or consumer, so the good is overproduced or overconsumed.

An external cost created when a good is consumed, borne by third parties, so that marginal social benefit is less than marginal private benefit, as with second-hand smoke or traffic congestion.

An external cost created when a good is produced, borne by third parties, so that marginal social cost is greater than marginal private cost, as when a factory pollutes a river.

A balancing item in the balance of payments that corrects for mistakes and missing records, so that the current, capital and financial accounts sum to zero.

The value of a country’s exports of goods and services minus the value of its imports (X − M); the component of aggregate demand that comes from trade with other countries.

Income earned abroad by a country’s residents (profits, interest, dividends and wages) minus income paid to non-residents; the difference between GNI and GDP.

The value of the foreign assets owned by a country’s residents minus the value of the domestic assets owned by foreigners, measured at a point in time.

The school of thought holding that markets clear quickly and people form rational expectations, so the economy tends to return to full employment on its own and active demand management is ineffective.

A piece of journalism from a newspaper, journal or news website, published no more than one year before the commentary on it is written; television and radio broadcasts are excluded.

The interest rate expressed in money terms, as quoted by a bank or lender, with no adjustment for inflation.

A value measured at the prices of the time it refers to (current prices), with no adjustment for changes in the price level.

An oligopoly in which firms do not cooperate but compete with each other, while taking account of how their rivals are likely to react.

A characteristic of a good when it is impossible, or too costly, to prevent people who have not paid for it from using it.

A not-for-profit organisation independent of government, such as a charity or community group, that works for social, humanitarian or development goals and is funded mainly by donations and grants.

Competition between firms by means other than price, such as advertising, branding, product quality, design, packaging, after-sales service and loyalty schemes.

The factors other than the good’s own price that affect how much consumers want to buy, such as income, tastes, expectations, the prices of related goods and the number of consumers; a change in one shifts the demand curve.

The factors other than the good’s own price that affect how much producers offer for sale, such as costs of factors of production, technology, taxes and subsidies, related goods, expectations and the number of firms.

Allocating a good in short supply by a method other than price, such as queuing, waiting lists, lotteries, ration coupons or sellers' preferences.

A natural resource, such as oil, coal or a metal ore, that exists in a fixed quantity, so that every unit used today reduces the amount available in the future.

A characteristic of a good whose consumption by one person does not reduce the amount available for others to consume, so the marginal cost of an extra user is zero.

A good for which demand rises when consumers’ incomes rise and falls when incomes fall, ceteris paribus.

The minimum profit a firm needs to keep its resources in their current use, counted as part of its economic costs; it is earned when average revenue equals average cost (AR = AC).

The part of economics that makes value judgments about what ought to happen, such as which goals matter most or which policy a government should choose; its statements cannot be proved true or false by evidence.

A change in the way choices are presented that steers people towards a particular decision without forbidding any option or significantly changing financial incentives.

A composite measure of well-being published by the OECD, covering 11 topics such as income, jobs, health, environment and life satisfaction, which users can weight themselves.

Loans that a government or central bank takes from foreign governments or international institutions, such as the IMF, recorded in the financial account.

Aid from governments and their agencies to developing countries and multilateral institutions whose main aim is economic development and welfare, given as grants or as loans on concessional terms.

A market structure dominated by a few large firms, protected by high barriers to entry, whose decisions on price and output are interdependent.

The buying and selling of government bonds by the central bank in the open market to change the reserves of commercial banks, the money supply and short-term interest rates.

The value of the next best alternative given up when a choice is made.

A method of measuring national income by adding up the value added by every firm and industry in the economy, which avoids double counting intermediate goods.

The difference between an economy’s actual real GDP and its potential output (the full employment level of output), often expressed as a percentage of potential output.

The situation where more resources are used to produce a good than is socially optimal, so output is above the level where MSB = MSC.

A currency whose official or market exchange rate is higher than the rate that would balance demand for and supply of it in a free market, making exports dear and imports cheap.

The extended response exam taken at SL and HL, in which students answer one two-part question, (a) worth 10 marks and (b) worth 15, from a choice of three.

The data response exam taken at SL and HL, in which students answer one question from a choice of two, using a text with data in seven parts worth 40 marks in total.

The HL-only policy paper, with two compulsory questions based on data, each containing calculations and short answers followed by a policy recommendation.

An illegal market in which a good subject to a price control is bought and sold at a price above the legal maximum, usually because the control has caused a shortage.

The international climate treaty adopted in December 2015 under which countries aim to keep global warming well below 2 °C and set their own national emissions pledges.

A legal right that gives the inventor of a new product or process the sole right to make, use and sell it for a fixed period, usually 20 years.

Payments to landowners or communities for managing land in a way that provides environmental benefits to others, such as protecting forest that stores carbon and keeps water supplies clean.

A table showing the outcome (payoff) for each player of every combination of the strategies the players can choose.

Per person: a total, such as GDP, GNI or spending, divided by the population, used to compare averages between countries or over time.

The change in a variable expressed as a percentage of its original value: the new value minus the original value, divided by the original value, multiplied by 100.

The unit for the arithmetic difference between two percentages: a rate that rises from 4% to 6% has risen by 2 percentage points, which is a 50% increase.

A market structure with very many small firms selling identical (homogeneous) products, with free entry and exit and perfect information, so that each firm is a price taker.

The assumption that all consumers and producers have complete and accurate knowledge of the prices, quality and characteristics of every good and service, at no cost.

Demand for which any rise in price above the current level causes quantity demanded to fall to zero, so that PED is infinite and the demand curve is horizontal.

Supply for which producers will supply any quantity at a given price but none at a lower price, so that PES is infinite and the supply curve is horizontal.

Demand for which quantity demanded does not change at all when price changes, so that PED is zero and the demand curve is vertical.

Supply for which quantity supplied does not change when price changes, so that PES is zero and the supply curve is vertical.

A good that cannot be stored for long without losing its value, such as fresh fruit, fish or cut flowers, so that its supply cannot respond quickly to price.

A direct tax on the income of individuals, such as wages, salaries, rent, interest and dividends, usually charged at rates that rise with income.

A curve showing the relationship between the unemployment rate and the inflation rate: the short-run curve slopes downward (a trade-off); the long-run curve is vertical at the natural rate of unemployment.

An indirect tax set to equal the external cost of a good at the socially optimal output, so that producers or consumers pay the full social cost and output falls to where MSB = MSC.

An economic system in which the government owns most resources and central planners decide what, how and for whom to produce, rather than market prices.

A proposal for one specific course of action that a government should take, justified with theory and data and weighed against its costs and alternatives.

The principle that those who cause pollution should bear its costs, for example through taxes, charges or the purchase of permits.

The set of three commentaries submitted for internal assessment, one on each of the microeconomics, macroeconomics and global economy units, marked out of 45.

Cross-border purchases of financial assets such as shares and bonds that do not give the buyer a controlling interest in the firm or institution that issued them.

The part of economics that describes and explains how the economy works using statements that can be tested against evidence, without value judgments about what ought to happen.

A benefit of producing or consuming a good that is enjoyed by third parties who do not pay for it, so the good is underproduced or underconsumed.

An external benefit created when a good is consumed, enjoyed by third parties, so that marginal social benefit is greater than marginal private benefit, as with vaccination or education.

An external benefit created when a good is produced, enjoyed by third parties, so that marginal social cost is less than marginal private cost, as when a firm trains workers who later move to other firms.

The real GDP an economy can produce when all its factors of production are employed at normal, sustainable rates; shown by the long-term growth trend.

The condition of lacking the income or resources needed for a minimum acceptable standard of living, judged against basic needs or against the typical living standards of a society.

A self-reinforcing situation in which low incomes lead to low saving, low investment and poor health and education, which keep productivity and incomes low, so poverty persists over time and across generations.

An agreement between countries to give each other’s goods preferential access to their markets, usually through lower tariffs, compared with the access given to non-members.

The tendency to give too much weight to costs and benefits that occur now compared with those in the future, leading to choices people later regret, such as undersaving.

A legal maximum price set by the government below the equilibrium price, above which a good or service may not be sold; it creates excess demand (a shortage).

Demand for which the percentage change in quantity demanded is larger than the percentage change in price, so that PED is greater than 1, ignoring the minus sign.

Supply for which the percentage change in quantity supplied is larger than the percentage change in price, so that PES is greater than 1.

A measure of the responsiveness of the quantity demanded of a good to a change in its own price, ceteris paribus: the percentage change in quantity demanded divided by the percentage change in price.

A measure of the responsiveness of the quantity supplied of a good to a change in its price, ceteris paribus: the percentage change in quantity supplied divided by the percentage change in price.

A legal minimum price set by the government above the equilibrium price, below which a good or service may not be sold; it creates excess supply (a surplus).

Demand for which the percentage change in quantity demanded is smaller than the percentage change in price, so that PED lies between 0 and 1, ignoring the minus sign.

Supply for which the percentage change in quantity supplied is smaller than the percentage change in price, so that PES lies between 0 and 1.

A firm with market power that can set its own price, facing a downward-sloping demand curve, so that it can sell more only by lowering its price.

The system in which the interaction of demand and supply sets prices, and changes in prices guide the decisions of consumers and producers about what, how much and for whom to produce.

A firm that has no influence over the market price and must accept the price set by market demand and supply, as in perfect competition.

A period of repeated price cuts by rival firms, each trying to win market share from the others, which can push prices down to or below average cost.

A raw material or agricultural product produced in the primary sector and traded with little or no processing, such as crude oil, copper, wheat or coffee.

The part of the economy that extracts or grows natural resources, including agriculture, fishing, forestry and mining.

A situation in which one party (the agent) acts on behalf of another (the principal) but has different objectives and better information, so the agent may not act in the principal’s interest.

A game in which each player's dominant strategy leads to an outcome that is worse for both players than the one they would reach if they could trust each other to cooperate.

A good that is both rivalrous and excludable: one person’s consumption leaves less for others, and people who do not pay can be prevented from consuming it.

The transfer of ownership of a firm or industry from the public sector (the government) to the private sector, usually by selling shares or assets.

The difference between the price producers receive for a good and the lowest price at which they are willing to supply it; the area above the supply curve and below the price.

Making a product different from rival products, in reality or in the minds of consumers, through design, quality, branding, packaging, location or service.

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

The situation where goods are produced at the lowest possible cost, so that no more of one good can be produced without producing less of another; shown by any point on the PPC.

The situation in which a firm does not produce at the lowest possible average cost, either because its output is not at minimum AC or because it wastes resources.

Output per unit of input over a period of time; labour productivity is output per worker or per hour worked.

The difference between a firm’s total revenue and its total costs; it is also the factor income earned by entrepreneurship.

The business objective of producing the output at which the difference between total revenue and total cost is greatest, where marginal revenue equals marginal cost.

A tax whose average rate rises as income rises, so that people with higher incomes pay a larger percentage of their income in tax.

Legally recognised and enforceable rights of individuals and firms to own, use, sell and earn income from assets such as land, buildings and businesses.

A tax whose average rate stays the same at every level of income, so that everyone pays the same percentage of their income in tax.

A government response to asymmetric information that makes sellers disclose, or itself publishes, information about products, for example compulsory labelling, quality ratings or published inspection results.

A good that is both non-rivalrous and non-excludable, so one person’s use does not reduce the amount available to others and non-payers cannot be prevented from using it, for example national defence.

A long-term contract in which a private firm finances, builds and often operates public infrastructure, such as a hospital, and the government pays it over many years.

The quantity of goods and services that a given amount of money can buy; inflation reduces it and deflation increases it.

An exchange rate at which a given basket of goods and services costs the same in two countries; values converted at PPP rates allow for differences in price levels.

An expansionary monetary policy in which the central bank creates new reserves to buy large quantities of financial assets, mainly government bonds, to lower long-term interest rates and raise the money supply.

The reversal of quantitative easing, in which the central bank reduces its holdings of bonds by selling them or not replacing them when they mature, shrinking bank reserves.

The amount of a good or service that consumers are willing and able to buy at one particular price during a given time period.

The amount of a good or service that producers are willing and able to sell at one particular price during a given time period.

A good that has some, but not all, of the characteristics of a public good, for example a road that is non-excludable but becomes rivalrous when congested.

A legal limit on the quantity or value of a good that may be imported into a country over a period of time.

The extra revenue earned by whoever holds the right to import under a quota, equal to the gap between the domestic price and the world price times the quantity imported.

The model in which consumers logically compare the costs and benefits of every option, with full information, and choose the combination of goods that maximises their utility given their income.

The role of prices in distributing scarce goods: a rising price reduces quantity demanded until it equals the quantity available, so the good goes to those willing and able to pay.

GDP measured at the constant prices of a base year, so that changes in it show changes in the volume of output rather than in prices.

The nominal interest rate adjusted for inflation, approximately the nominal interest rate minus the rate of inflation; it measures the true cost of borrowing and the true return to saving.

A value adjusted for changes in the price level, measured at the constant prices of a base year, so that it reflects changes in quantity only.

A specific, identifiable case, such as a named country, market, firm or policy with its date and if possible figures, used to support an economic argument.

A period in which real GDP falls, commonly defined as two consecutive quarters of negative real GDP growth.

Government policies that change the distribution of income or wealth, usually to reduce inequality, through progressive taxes, transfer payments, minimum wages and public services used mainly by lower-income groups.

The rejection of a hypothesis or theory because empirical evidence contradicts its predictions; a scientific claim must be stated so that evidence could in principle refute it.

A trade agreement between several countries, usually in the same region of the world, that reduces barriers to trade between them.

A tax whose average rate falls as income rises, so that people with lower incomes pay a larger percentage of their income in tax than people with higher incomes.

A situation in which income is well below the typical income of the society a person lives in, usually measured as household income below 50% or 60% of the median.

Money sent home by people working in another country to their families or communities in their country of origin.

A natural resource, such as a forest, fish stock or groundwater, that regenerates naturally and can be used indefinitely if it is used no faster than it regenerates.

Spending by firms or governments on investigating and developing new products and new methods of production.

Foreign currencies, gold and other foreign assets held by a country’s central bank, which it can use to pay for imports, repay foreign debt or intervene in the foreign exchange market.

The way scarce factors of production are assigned to producing different goods and services; in a market economy it is decided by the price mechanism through signalling and incentives.

A form of choice architecture in which the number or type of options available is limited, to make decisions simpler or steer people away from options that may harm them.

Trade protection imposed by a country in response to barriers placed on its own exports by another country; repeated rounds of retaliation form a trade war.

A decision by the government or central bank to raise the value of its currency in a fixed (or managed) exchange rate system.

Describes a good whose consumption by one person reduces the amount available for others, such as a fish caught from the sea.

The three formal rules marked under criterion F: each article from a different unit, each from a different and appropriate source, and each published within one year of the commentary.

The principle that everyone, including the government, is subject to the same known laws, enforced fairly and predictably by independent courts.

A simple mental shortcut used to make a decision quickly, instead of comparing all the costs and benefits of every option; also called a heuristic.

The criteria used to decide which country a good comes from, such as a minimum share of its value produced inside a trading bloc, so that only members’ goods receive tariff preferences.

A business objective in which a firm aims for a satisfactory level of profit, or a satisfactory outcome across several goals, rather than the maximum possible profit.

The part of income that households do not spend on consumption; it is a leakage from the circular flow of income.

The classical idea, named after Jean-Baptiste Say, that supply creates its own demand: the income earned from producing goods is spent on other goods, so there can be no general shortage of demand.

The basic economic problem that resources are limited while human needs and wants are unlimited, so not all needs and wants can be satisfied.

Action taken by the less-informed party to find out the hidden information of the other party, for example a medical check before life insurance or a test before hiring.

Unemployment that occurs because demand for labour in some industries, such as tourism, agriculture and construction, changes with the seasons of the year.

The part of the economy that processes raw materials into manufactured goods, including manufacturing and construction.

A change in the shares of output and employment produced by the primary, secondary and tertiary sectors, usually from primary to secondary and then tertiary as incomes rise.

A change in the quantity demanded at every price, caused by a change in a non-price determinant of demand; an increase shifts the curve right and a decrease shifts it left.