economics terms

24 Aug 2021

IB HL and SL Economics Glossary

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Barriers of entry
Barriers of entry are obstacles prevents potential new comers from entering the market,

Budget deficit
Budget deficit is when government spending is greater than government revenues.


Ceteris paribus
Ceteris paribus is a Latin expression which means "let all other things remain equal"

Complement goods
Complement goods are goods which are used together. Examples computers and computer software

Consumer surplus
Consumer surplus is the difference between how much the consumers in the market are prepared to pay and how much they actually pay.


Demand refers to the quantities of a product that consumers are willing and able to buy at various prices in a given time period, ceteris paribus.


Economic Growth
Economic growth is increased real output for an economy over time and measured as an increase in real GDP

Economies of scale
Economies of scale are any fall in long run unit (average) costs that come about as a result of a firm increasing its scale of production (output)

Equilibrium price
Equilibrium price is a market clearing price, a price level that settles as a result of quantity supplied being exactly the same as quantity demanded. It occurs at the intersection of demand and supply.

Exchange rate
Exchange rate is value of one currency expressed in terms of another.


Gross domestic product
Gross domestic product is the total value/output of final goods and services produced in an economy (in a given time period).


Income elasticity of demand
Income elasticity of demand (YED) is a measure of the responsiveness of demand for a good to a change in income

Indirect tax
An Indirect tax is an expenditure tax on a good or service. It is shown as an upward shift in the supply curve as costs of production rises when an indirect tax is imposed

Inferior goods
Inferior goods are goods which demand increases as income rises. Inferior goods have positive income elasticity


Long run
The long run is a period of time where all factors of production are variable.

Law of demand
The law of demand states that, assuming other things remain constant, there is an inverse relationship between the price and the quantity demanded of the good itself, ceteris paribus

Law of diminishing marginal returns
Law of diminishing marginal returns states that as extra units of the variable factor are applied to a fixed factor, the output from each additional unit of the variable factor will eventually diminish


A market is where buyers and sellers come together to establish an equilibrium price and quantity for a good or service.

Monopoly is a market structure whereby there is only one firm in the industry

Marginal revenue
Marginal revenue is the extra revenue gained from selling an additional unit of a good or service

Market failure
Market failure is the failure of markets to produce at the socially efficient level of output

Maximum price
A maximum price is also known as a price ceiling. It is a price set by the government below the equilibrium price.

Minimum price
Minimum price or price floor. It is a price set by the government above the market price. It is set to protect producers supplying essential goods from low prices


Normal good
Normal goods are goods with positive income elasticity. As income rises the demand for normal goods rises

Normal profits
Normal profits are the amount of revenue needed to cover the total costs of production, including the opportunity costs


Perfect competition
Perfect competition is  a market structure where there is a very large number of small firms, producing homogenous products. There are low barriers to entry. As a result firms cannot influence price and are price takers.

Price discrimination
Price discrimination takes place when a producer charges a different price to different consumers for an identical good or service

Price elasticity of demand (PED)
Price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price

Price elasticity of supply (PES)
Price elasticity of supply (PES) is a measure of the responsiveness of the quantity supplied of a good or service to a change in its price

Producer surplus
Producer surplus is the difference between the price that producers in the market are prepared to sell their goods or service and how much they actually receive.


Supply refers to the quantities of a product that suppliers are willing and able to sell at various prices per period of time, ceteris paribus


Short run
The short run is the period of time in which at least one factor of production is fixed

Subsidies are a sum of money the government gives to an industry in order reduce cost of production or reduce the price of a good.


Substitute goods
Substitute goods are goods that can be used instead of each other.


The law of supply
The law of supply states that as the price of a good rises, the quantity supplied increases, ceteris paribus
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