IB Economics CHEAT SHEET – Flashcards
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Credit
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An arrangement to receive cash, goods, or services now and pay for them in the future.
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Debit
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A arrangement to pay cash, goods, or services now for them to be paid back to the lender in return.
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Microcredits
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Programmes which extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.
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Market
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An organized, voluntary exchange of commodities (including resources, goods, and services) among buyers and sellers, during a given time period.
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Demand
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The quantity of a goods or services consumers are willing and able to buy over a range of prices in a given time period.
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Supply
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The quantity of goods and services producers are willing and able to produce over a range of prices in a given time period.
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Law of demand
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As the price of a product falls, the quantity demanded of the product will usually increase, ceteris paribus.
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Law of supply
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As the price of a product falls, the quantity supplied of the product will usually decrease, ceteris parabus.
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Marginal utility
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The extra satisfaction consumers gain when one more good/service is consumed.
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Inferior goods
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Goods with a negative income elasticitiy of demand. As income increases, the demand for these goods and services will fall.
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Normal goods
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Goods with a positive income elasticity of demand. As income increases, the demand for these goods and services will increase.
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Superior goods
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Goods with a income elasticity of demand greater than 1.
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Substitute goods
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Goods that have a positive cross elasticity of demand. As the price of good A increases, the demand of good B increases. Assuming that goods A and B are substitutes.
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Complementary goods
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Goods with a negative cross elastiity of demand. As the price of good A increases, the demand of good B will Fall, assuming that good A and B are complements.
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Oppertunity cost
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The next best alternative forgone.
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Scarcity
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Having limited finite resources, but having to deal with infinite wants from the people.
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Consumer surplus
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Defined as the highest price consumers are willing to pay for a good minus the price actually paid.
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Produce surplus
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Defined as the price received by firms for selling their good minus the lowest price that they are willing to accept to produce the good.
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Price elasticity of demand
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The responsiveness of quantity demanded to a change in price, along a given demand curve.
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Price elasticity of supply
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The responsiveness of quantity supplied to a change in price, along a given supply curve.
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Income elasticity of demand
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The responsiveness of quantity demanded to a change in income.
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Cross elastiity of demand
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The responsivess of the quantity demanded of one good A to a change in price of good B.
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Economic growth
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Refers to increases in real output, potential output and real GDP over time, often measured on a per capita basis.
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Economic development
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Refers to a process that leads to improved standards of living for a population as a whole. Measured using composite measures such as the human development index.
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UN millenium development goals
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Eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality, reduce child mortality, improve maternal health, combat HID/AIDS and other diseases...
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poverty trap
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The inability to invest in human, physical and natural capital, leading to low growth in income and low overall income, eventually leading to a self-perpetuating cycle.
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Bilateral trade agreement
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A trade agreement associated with two countries.
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Multilateral trade agreement
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A trade agreement associated with many countries.
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Free trade area
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A group of countries that agree to gradually eliminate trade barriers between themselves, and is the most common type of trading bloc.
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Customs union
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A group of countries that agree to gradually eliminate trade barriers between themselves, and adopt a common trade policy towards non-members.
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Common market
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A group of countries that agree to gradually eliminate trade barriers between themselves, and adopt a common trade policy towards non-members, with free movement of the factors of production.
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Monetary union
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A group of countries that agree to gradually eliminate trade barriers between themselves, and adopt a common trade policy towards non-members, with free movement of the factors of production, with a common central bank.
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Current account
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Balance of payments is the sum of: (i) the balance of trade in goods; (ii) the balance of trade in services; (iii) income inflows minus outflows; and (iv) current transfer inflows minus outflows.
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Capital account
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Balance of payments of a country is composed of inflows minus outflows of funds for capital transfers and transactions in non- produced, non-financial assets.
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Financial account
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Balance of payments of a country is composed of the inflows minus outflow of: direct investment, portfolio investment, and reserve assets.
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Balance of payments
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The balance of payments accounts record the financial flows between a country and the rest of the world.
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Exchange rate
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The value of one country's currency relative to another country's currency at a given point in time.
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Floating exchange rate system
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An exchange regime where the value of a currency is allowed to be solely determined by the market forces.
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Appreciation
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An increase in the value of a currency with respect to another currency in a floating exchange rate system.
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Depreciation
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A fall in the value of a currency with respect to another currency in a floating exchange rate system.
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Foreign reserves
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When there are excess supply of money in a country, the government intervenes and stores that money in foreign currencies.
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Devaluation
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If the currency has a higher value than can be maintained through intervention, the government may change the fixed rate to a new, lower value.
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Currency pegging
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The government purposely manages its currency and setting its value with respect to a more stable currency.
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WTO functions
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-Administer WTO trade agreements -Be a forum for trade negotiations -Handle trade disputes among member countries -Monitor national trade policies -Provide technical assistance and training for developing countries -Cooperate with other international organizations.
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WTO principles
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-Non-discrimination -Free trade -Predictability -Promotion of fair competition -Development and economic reform should be encouraged
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Tariff
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A tax imposed by the government levied on imported products.
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Quota
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A physical limit set by the government to control the number of a particular import entering the country.
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Embargoes
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A physical limit set by the government to control the number of imported goods entering a country due to political reasons.
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Subsidy
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A sum of money given by the government to firms or businesses to promote production, improve income levels and act as an incentive. Per unit output.
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Case for protectionism
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-Protecting infant industries -Protecting strategic industries -Prevent unemployment rates increasing -Prevent dumping -To uphold health or quality standards.
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Case again protectionism
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-Lack of choice -Lact of allocative efficiency -Loss of competitiveness -Downward multiplier effect -Retaliation -Bureaucracy arises
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Fiscal policy
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Policies that involves: • changes in government spending • changes in taxation • to achieve macroeconomic objectives (relating to inflation and/or unemployment and/or economic growth and/or equity).
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Monetary policy
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Policies that are : • carried out by the central bank • that involves changes in interest rates • that involves changes in money supply.
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Supply side policies
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Policies that aims on improving supply as a method to ultimately boose AD.
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Equity
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The condition of being fair or just.
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Equality
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The state of being equal with respect to something.
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exchange rate effect dependents
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1.Depends on the PED. 2.Depends on the size of the appreciation/depreciation. 3.Income of countries abroad. 4.Destrictions on trade/protectionism.
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Dumping
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Selling of goods in another country below the cost of production.
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Inflation
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The general and sustained increase in the average price level of a country.
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Infrastructure
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Large scale public systems provided by the government that are necessary for the economy to function and additing to the capital function of the country.
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Goal of the central bank
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• regulator of commercial banks • banker to the government • control of interest rates • control of money supply • maintenance of price stability • control of exchange rate policy • implementation of monetary policy • lender of last resort • pursuit of full employment • collection of economic data
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Consumption
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Spending by households (consumers) on goods and services.
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Fixed exchange rate
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The country's value of a currency is fixed relative to the value of another currency or a basket of other currencies or gold.
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Investment
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Addition to the capital stock of the economy or expenditure by firms on capital.
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Price floor
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An explanation that it is a price (set by the government) above the equilibrium price or a price (set by the government) below which the price may not fall.
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Informal sector
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Economic activity that is unrecorded (illegal/not taxed) by the government.
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Gross domestic product
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It is the sum of consumption, investment, government spending and net exports.
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Concessional long-term loans
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• a form of aid • very low (below market rate) or no rate of interest • repayments are stretched over a long time period (25 to 40 years) • may include a grace period • may be repayable in local currency.
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Absolute poverty
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• having insufficient income to meet basic human needs • living on less than US$2 (PPP) a day (or US$1 or US$1.25).
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Direct taxes
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Taxes (paid to the government) on income (household and firms).
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Current account deficit
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An explanation that the outflows of money from trade in goods and services, income flows and transfers are larger than the inflows of money.
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Entrepreneurship
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One of the factors of production that is responsible for setting up the business and organizing the other 3 factors of production.
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Gross national income
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Gross Domestic Product + net property income from abroad
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foreign direct investment
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• The purchase of financial investments (shares and bonds). • In order to gain a financial return (interest or dividends). • It is part of the financial account.
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quota
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It is a physical limit on the number or value of a good that can be imported into a country.
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economic development
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• improvement in standards of living • reduction in poverty • improved health and education • reduction in unemployment • greater equality in income distribution • environmental protection • increased freedom and economic choice.
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concessional long-term loans
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A form of aid with: • very low (below market rate) or no rate of interest • repayments are stretched over a long time period (25 to 40 years) • may include a grace period • may be repayable in local currency.
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absolute poverty
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Group of people who have insufficient income to meet basic human needs and living on less than US$2 (PPP) a day (or US$1 or US$1.25).
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quantity demanded
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the amount of a good that buyers are willing and able to purchase
