IB ECONOMICS glossary

IB Economics glossary

Key terms list

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Category	Term	IB-Aligned Definition	Humanised/Clarifying Explanation
Trade	Absolute advantage	When a country can produce more of a good or service using the same quantity of resources than another country.	Like being the fastest chef in a cooking competition – you just cook more meals in the same time!
Development	Absolute poverty	A condition where individuals do not have enough income to meet the basic necessities of life.	Not enough for food, shelter, or clothes – it’s about survival.
Macro	Actual growth	An increase in real output (real GDP) due to the use of previously idle resources.	Factories go from sleeping to working – output grows!
Micro	Adverse selection	A situation where one party has more information than the other, leading to poor market outcomes.	Like selling a car you know is faulty – but the buyer doesn't.
Macro	Aggregate demand	The total demand for all goods and services in an economy at a given price level.	Everyone in a country shouting “I want to buy!”
Macro	Aggregate demand curve	A curve showing the inverse relationship between the price level and quantity of output demanded.	As prices go up, people buy less – it slopes downward.
Macro	Aggregate supply (AS)	The total output that firms are willing and able to produce in an economy.	What businesses bring to the party – all their goods and services.
Micro	Allocative efficiency	Occurs when resources are distributed so that marginal social benefit equals marginal social cost.	Society’s getting what it wants most – like nailing the perfect pizza-topping ratio.
Micro	Allocative inefficiency	When marginal social benefit doesn’t equal marginal social cost.	Like overpaying for a burger no one wanted.
Micro	Anchoring	A behavioural bias where people rely too much on an initial piece of information.	First impressions stick – even in prices!
Micro	Anti-monopoly regulation	Laws or actions designed to prevent firms from dominating markets and harming competition.	Keeps the playground fair – no bullies allowed!
Trade	Appreciation	An increase in the value of a currency in a floating exchange rate system.	Your currency now buys more of someone else’s – it got stronger!
Development	Appropriate technology	Technology suitable to the social and economic conditions of a country.	It’s not about the flashiest tech – it’s about the right fit.
Micro	Asymmetric information	When one party in a transaction has more or better information than the other.	Like buying a used laptop that secretly has a broken battery.
Macro	Automatic stabilizers	Government tools like taxes and benefits that help reduce economic fluctuations without new policies.	Economic airbags – they kick in automatically during crashes.
Macro	Average tax rate	The proportion of income paid in tax, calculated as total tax divided by total income.	Your personal tax scoreboard in percentage form.
Trade	Balance of payments	A record of all financial transactions between a country and the rest of the world.	Like a country’s international bank statement.
Trade	Balance of trade in goods	The difference in value between goods a country exports and imports.	Are we selling more cars than we’re buying TVs?
Trade	Balance of trade in services	The difference between services exported and imported.	Think: tourism in vs. holidays abroad.
Micro	Behavioural economics	A field that incorporates psychological insights into economic decision-making.	Why people don’t always do what “rational” economists expect!
Micro	Bounded rationality	The idea that decision-makers are limited by information, time, and brainpower.	We try our best… but we’re not robots.
Micro	Bounded self-control	When people struggle to make decisions that are best for their long-term interests.	Like planning to save… but ending up online shopping.
Micro	Bounded selfishness	Suggests people aren’t purely self-interested – they sometimes care about others.	Why we tip waiters or donate to charity.
Macro	Budget deficit	When a government spends more than it earns in revenue.	It’s like using a credit card when your wallet’s empty.
Macro	Business confidence	How optimistic businesses feel about the economy’s future.	When firms feel brave, they invest and hire more.
Macro	Business cycle	Fluctuations in economic activity over time, typically moving through growth and recession.	The economy’s rollercoaster – with highs (booms) and lows (recessions).
Micro	Capital	One of the factors of production, including tools, machines, and buildings used to produce goods.	Not money – think: hammers, factories, laptops.
Trade	Capital account	Part of the balance of payments showing capital transfers and acquisition/disposal of assets.	Tracks big asset movements like property or shares.
Trade	Capital flight	A large-scale exodus of financial capital from a country due to instability.	Like investors grabbing their cash and running!
Trade	Capital transfers	Transfers involving ownership of fixed assets or debt forgiveness.	It’s the “big stuff” – like writing off a national debt.
Macro	Carbon (emissions) taxes	Taxes on the carbon content of fuels to reduce pollution.	Pollute more? Pay more.
Macro	Central bank	The national institution that manages monetary policy and the currency.	The economy’s money boss.
Micro	Ceteris paribus	Latin for “all other things being equal.”	Economics' way of saying “let’s isolate just one thing.”
Micro	Choice architecture	How the way choices are presented can influence decision-making.	Menu design for the mind.
Macro	Circular economy	An economic system that aims to eliminate waste and continually reuse resources.	Reduce, reuse, recycle – economically.
Macro	Circular flow of income	A model showing how income flows between households and firms.	The economy’s bloodstream.
Micro	Coase theorem	Suggests that with clear property rights, private negotiations can solve externalities.	Neighbours settle a noise complaint with cookies, not courts.
Micro	Collusive oligopoly	A market where few firms agree (formally or tacitly) to fix prices or limit output.	When big players “whisper” deals to keep profits up.
Development	Common access resources	Resources that are hard to exclude people from using, yet depletable.	Like fish in the ocean – shared, but finite.
Trade	Common market	A trade bloc allowing free movement of goods, services, capital, and labour.	Countries that trade like family.
Trade	Comparative advantage	When a country produces a good at a lower opportunity cost than others.	Even if you’re not the best, you can still be the most efficient!
Micro	Competitive supply	When two goods compete for the same resources in production.	Wheat vs. corn on the same farm.
Micro	Complements	Goods consumed together.	Peanut butter and jelly – demand for one boosts the other.
Macro	Consumer confidence	Measures how optimistic households are about future income and spending.	If people feel rich, they shop more!
Micro	Consumer nudges	Subtle interventions that influence consumer behaviour without restricting choice.	Like putting fruit at eye level in the school canteen.
Macro	Consumer price index (CPI)	Measures changes in the average price level based on a basket of goods.	The “cost of living” thermometer.
Micro	Consumer surplus	The difference between what consumers are willing to pay and what they actually pay.	The sweet feeling of scoring a deal!
Macro	Consumption (C)	Total spending by households on goods and services.	What people buy with their paychecks.
Macro	Contractionary monetary policy	Central bank measures (e.g. raising interest rates) to reduce aggregate demand and curb inflation.	Like slamming the brakes when the economy's overheating.
Micro	Corporate social responsibility	When firms voluntarily consider the social and environmental impacts of their actions.	Businesses doing good while doing business.
Macro	Cost-push inflation	Inflation caused by rising costs of production (e.g. wages or raw materials).	When making stuff gets pricier, and so does the price tag.
Macro	Credit creation	The process by which banks lend out more money than they hold in deposits.	Like multiplying money through loans.
Macro	Crowding out	When government borrowing raises interest rates, reducing private investment.	Government hogs the credit line, leaving less for businesses.
Trade	Current account	Part of the balance of payments covering trade in goods, services, income, and transfers.	Like a country’s earnings-and-spending report with the world.
Trade	Current account deficit	When a country imports more than it exports, including income flows.	More money leaves the country than comes in.
Trade	Current account surplus	When exports and income inflows exceed imports and outflows.	You're selling more than you're buying – a trade win.
Trade	Current transfers	Transfers of money with nothing received in return, e.g. remittances or foreign aid.	Gifts between countries or people across borders.
Trade	Customs union	A trade bloc where members trade freely and adopt a common external tariff.	A trading team with shared rules for outsiders.
Macro	Cyclical (demand-deficient) unemployment	Unemployment caused by insufficient aggregate demand.	Not enough shopping = not enough jobs.
Development	Debt relief (cancellation)	Forgiving a country’s debt to support economic development.	Like hitting the reset button on your loan.
Micro	Default choices	Pre-selected options that take effect if no active choice is made.	“If you don’t decide, we’ve decided for you.”
Macro	Deflation	A persistent decrease in the general price level.	Prices drop, but that’s not always a good thing!
Macro	Deflationary/recessionary gap	When actual output is below potential output in an economy.	Like a car engine running below full speed.
Micro	Demand	The quantity of a good consumers are willing and able to buy at different prices.	What people want – if they can afford it.
Micro	Demand curve	A graph showing the relationship between price and quantity demanded.	The more it costs, the less we want – usually!
Macro	Demand management	Policies to influence aggregate demand (e.g. fiscal or monetary policy).	Government’s toolkit to rev up or slow down the economy.
Macro	Demand-pull inflation	Inflation caused by excessive demand in the economy.	Too many dollars chasing too few goods.
Micro	Demerit goods	Goods that are overconsumed and harmful, often underpriced by the market.	Junk food for the economy – too much is bad!
Trade	Depreciation	A fall in the value of a currency in a floating exchange rate.	Your money buys fewer euros or dollars.
Macro	Deregulation	The removal of government controls to encourage competition.	Letting markets run with fewer rules.
Trade	Devaluation	A deliberate reduction in a currency's value in a fixed exchange rate.	“Let’s officially make our money worth less.”
Development	Development aid	Financial or technical aid aimed at improving economic welfare in poorer nations.	Helping countries grow sustainably, not just survive.
Macro	Disinflation	A fall in the rate of inflation (but still positive inflation).	Prices are still rising – just more slowly.
Micro	Disposable income	The income left after taxes and transfers, available for spending or saving.	What’s in your wallet after the taxman takes his cut.
Trade	Dumping	Selling goods in another country at below production cost.	“We’ll take a loss just to grab your market!”
Development	Economic development	A broad concept involving improvements in health, education, and living standards.	GDP + human lives getting better.
Macro	Economic growth	An increase in the quantity of goods and services produced (real GDP).	More stuff, more jobs, more income.
Macro	Economic well-being	The quality of life based on income, security, and opportunity.	Money matters – but so does happiness.
Development	Economically least developed countries (ELDCs)	Countries with low income, weak infrastructure, and high vulnerability.	Nations facing big uphill battles economically.
General	Economics	The study of how scarce resources are allocated to meet unlimited wants.	Why we can’t have it all – and what we do about it.
Micro	Economies of scale	Cost savings as output increases, lowering average costs.	Bulk buying for businesses.
Micro	Efficiency	The optimal use of resources to maximise output or welfare.	No waste – maximum bang for your buck.
Micro	Elasticity	A measure of responsiveness to changes in price, income, etc.	How stretchy is demand or supply?
Trade	Elasticity of demand for exports	Responsiveness of export demand to changes in export prices.	If we lower our prices, do others buy more?
Trade	Elasticity of demand for imports	Responsiveness of import demand to changes in import prices.	Will we stop buying foreign stuff if it costs more?
Micro	Engel curve	A graph showing how spending on a good changes with income.	Richer? More steak, fewer beans.
Micro	Entrepreneurship	The factor of production involving risk-taking and innovation.	The ones who mix land, labour, and capital – and take the gamble.
Micro	Equilibrium	The point where supply equals demand.	The economic sweet spot.
Micro	Equity	Fairness in the distribution of income and opportunity.	Justice, not just equality.
Micro	Excess demand	When quantity demanded is greater than quantity supplied.	When there’s not enough of something to go around.
Micro	Excess supply	When quantity supplied exceeds quantity demanded.	Too much stuff – not enough buyers.
Trade	Exchange rate	The price of one currency in terms of another.	The money conversion rate – pesos to pounds.
Macro	Expansionary monetary policy	Central bank tools (like lower interest rates) to boost aggregate demand.	The economy’s caffeine shot.
Trade	Expenditure reducing	Policies aimed at lowering overall spending, especially on imports.	Cool down the economy, stop import splurging.
Trade	Expenditure switching	Policies encouraging consumers to buy domestic instead of imported goods.	“Buy local” – government edition.
Trade	Export promotion	Policies aimed at increasing the volume and value of exports.	Help businesses sell abroad – go global!
Trade	Export revenue	Income from selling goods and services to other countries.	What we earn from our stuff being wanted abroad.
Trade	Exports	Goods and services sold to other countries.	Stuff made here, sold there.
Trade	External balance	When a country’s current account is in equilibrium (no big surplus or deficit).	Not owing or lending too much globally.
Micro	Externalities	Costs or benefits affecting third parties not involved in a transaction.	When your choices affect people who didn’t sign up for it.
Micro	Factors of production	Inputs used to produce goods: land, labour, capital, entrepreneurship.	The ingredients of economic cake.
Trade	Fairtrade	A certification for goods ensuring fair wages and ethical production for producers.	A feel-good label for your chocolate and coffee.
Trade	Financial account	Part of the balance of payments tracking investments and assets between countries.	Who owns what across borders.
Micro	Firms	Organisations that produce goods or services to earn profit.	The economic players that turn ideas into stuff.
Macro	Fiscal policy	Government spending and taxation used to influence aggregate demand.	The government’s financial levers.
Trade	Fixed exchange rate	A currency value pegged to another or a basket of currencies.	Like locking your currency to a buddy’s.
Trade	Floating exchange rate	A currency value determined by supply and demand in foreign exchange markets.	Letting the market decide what your money’s worth.
Development	Foreign aid	Transfer of money or goods from one country to another to support development.	Global help packages.
Trade	Foreign direct investment (FDI)	Investment by a firm in a foreign country’s business assets.	Setting up shop abroad – not just buying shares.
Macro	Foreign sector	The part of the economy involved in imports and exports.	Where the global money flows in and out.
Micro	Framing	The way information is presented influences choices.	Say “90% lean” instead of “10% fat” – same thing, different impact.
Micro	Free goods	Goods with no opportunity cost because they’re not scarce.	Air (in most places) – free and unlimited.
Micro	Free market economy	An economy where prices are determined by supply and demand with minimal government intervention.	Let the invisible hand do its thing.
Micro	Free rider problem	When people benefit from resources without contributing to their cost.	“I’ll use the park, but I won’t pay the taxes.”
Trade	Free trade	Trade without tariffs, quotas, or barriers.	Goods and services moving border-free.
Trade	Free trade agreement	An agreement to reduce or remove trade barriers among member countries.	Economic friendship pacts.
Micro	Frictional unemployment	Short-term unemployment while workers transition between jobs.	“Between gigs” unemployment.
Macro	Full employment level of output	The output when all resources are used efficiently, with only natural unemployment.	The economy’s happy place.
Macro	Gini coefficient (index)	A number between 0 and 1 measuring income inequality.	0 = equal pie; 1 = one person eats it all.
Macro	Government (national) debt	Total outstanding borrowing by the government.	What the state owes – past spending on credit.
Macro	Government spending (G)	Expenditure by the government on goods, services, and transfers.	Public money for public stuff.
Macro	Gross domestic product (GDP)	Total value of final goods/services produced within a country in a year.	The size of your economic pie.
Macro	Gross national income (GNI)	GDP plus net income earned from abroad.	GDP + overseas money made by locals.
Macro	Growth in production possibilities	Outward shift in the PPC due to improved resources or technology.	When the economy’s “can-do” list gets longer.
Development	Happiness Index	A measure of national well-being based on subjective and objective factors.	GDP + smiles.
Development	Happy Planet Index	An index measuring sustainable well-being, not just income.	Are you happy, and is the planet OK?
Micro	Households	Economic agents that consume goods and supply labour.	You, me, and the people who buy and work.
Development	Human Development Index (HDI)	Composite index of life expectancy, education, and income.	A more human version of GDP.
Development	Human Opportunity Index (HOI)	Measures inequality of access to basic services for children.	Are all kids getting a fair shot?
Development	Humanitarian aid	Short-term emergency aid for crises (e.g. natural disasters).	Lifesaving help when disaster strikes.
Micro	Imperfect competition	Market structures that don’t meet the conditions of perfect competition.	Real-world markets with quirks.
Micro	Imperfect information	A situation where not all parties have full knowledge.	When the seller knows more than you – and it matters.
Trade	Import expenditure	Total spending on goods and services from abroad.	What we pay for foreign stuff.
Trade	Import substitution	Replacing foreign goods with domestically made ones.	“Let’s make it here instead.”
Trade	Imports	Goods and services purchased from other countries.	Foreign stuff coming in.
Micro	Incentive effect	The way price changes influence producers’ or consumers’ decisions.	“Ooh, prices are up – let’s make more!”
Macro	Income	Earnings from providing labour or capital.	Money flowing into your pocket from working or investing.
Micro	Income effect	When price changes affect real income and hence demand.	“Cheaper? I feel richer!”
Micro	Income elasticity of demand (YED)	Responsiveness of demand to changes in income.	Do we buy more of it when we get richer?
Micro	Indirect taxes	Taxes imposed on spending (e.g. VAT, excise duties).	Taxes that sneak in at checkout.
Trade	Infant industry	A new industry needing protection to become competitive.	Baby businesses needing nurturing.
Micro	Inferior goods	Goods for which demand falls as income rises.	Think instant noodles when you get a raise.
Macro	Inflation	A sustained increase in the general price level.	When your money buys less than it used to.
Macro	Inflation rate	The percentage increase in the general price level over time.	How fast your wallet’s losing power.
Macro	Inflationary gap	When actual output exceeds potential output.	The economy’s running too hot.
Macro	Informal market	Economic activity not taxed or regulated by the government.	Under-the-table deals and cash jobs.
Macro	Infrastructure	Fundamental physical systems (e.g. roads, energy) supporting the economy.	The economic plumbing.
Macro	Injections	Additions to the circular flow – investment, government spending, exports.	Money fuel into the economy.
Macro	Interest rate	The cost of borrowing or reward for saving.	The price tag on money.
Global	International Monetary Fund (IMF)	International body promoting financial stability and aiding struggling economies.	The global money lifeguard.
Trade	International trade	The exchange of goods and services across countries.	Global economic give-and-take.
Macro	Investment (I)	Spending on capital goods to increase future production.	Today’s spending for tomorrow’s making.
Trade	J-curve	Theory that a depreciation worsens the trade balance before improving it.	Things get worse before they get better – currency edition.
Micro	Joint supply	When one production process yields multiple products.	Make beef, get leather.
Macro	Keynesian multiplier	The ratio of a change in national income to an initial change in spending.	Government spends, economy booms bigger than expected.
Macro	Keynesian revolution	A shift towards the belief in active government management of demand.	The OG economic mic-drop: “Govs matter!”
Micro	Labour	The human input into production, both physical and mental.	People power that makes things happen.
Macro	Labour market flexibility	How easily labour markets adjust to changes in the economy.	Can workers switch jobs or locations smoothly?
Micro	Labour union	An organisation that represents workers’ interests.	Workers' team trying to level the playing field.
Micro	Laissez faire	The idea that markets function best with minimal government intervention.	Hands-off economics – let it ride!
Micro	Land	Natural resources used in production.	The Earth’s gift basket to producers.
Micro	Law of demand	As price falls, quantity demanded increases, ceteris paribus.	Cheaper? We want more!
Micro	Law of supply	As price rises, quantity supplied increases, ceteris paribus.	Price goes up? We make more!
Macro	Leakages	Withdrawals from the circular flow: savings, taxes, imports.	Money escaping the economic whirlpool.
Macro	Long run aggregate supply (LRAS)	Output when all resources are fully employed.	The economy’s max output potential.
Macro	Long-run Phillips curve	A vertical line showing no trade-off between inflation and unemployment long-term.	In the long run, you can't cheat trade-offs.
Macro	Lorenz curve	A graph showing income distribution in a society.	The squiggle that shows inequality.
Macro	Macroeconomics	The study of economy-wide phenomena like growth, inflation, and unemployment.	The big picture stuff.
Trade	Managed exchange rate	A system where currency is mostly market-driven but occasionally adjusted by the central bank.	A “mostly free” currency with supervision.
Micro	Mandated choices	Policies requiring people to make an active decision.	No snooze button on this policy.
Micro	Manufactured goods	Goods made from raw materials.	Stuff that's been worked on by humans.
Micro	Marginal costs	The cost of producing one additional unit.	What it costs to make “just one more.”
Macro	Marginal propensity to consume (MPC)	Fraction of extra income spent on consumption.	Got more? Spend more.
Macro	Marginal propensity to import (MPM)	Fraction of extra income spent on imports.	More money = more imported gadgets.
Macro	Marginal propensity to save (MPS)	Fraction of extra income that is saved.	The squirrel instinct in economics.
Macro	Marginal propensity to tax (MPT)	Fraction of extra income paid in taxes.	The government’s automatic cut.
Micro	Marginal social benefit (MSB)	Extra benefit to society from consuming one more unit.	Society’s total “yay” for one more unit.
Micro	Marginal social cost (MSC)	Extra cost to society from producing one more unit.	Pollution, noise, and other hidden “extras.”
Macro	Marginal tax rate	Tax paid on the last unit of income earned.	The government’s slice of your raise.
Micro	Marginal utility	Extra satisfaction from consuming one more unit.	How much more joy that second donut brings.
Micro	Market	A place where buyers and sellers exchange goods and services.	The economic dating app for buyers and sellers.
Micro	Market demand	Total quantity demanded by all consumers at various prices.	What everyone wants at each price.
Micro	Market equilibrium	Where quantity demanded equals quantity supplied.	Economic peace – buyers and sellers agree.
Micro	Market failure	When the market fails to allocate resources efficiently.	Oops! The invisible hand slipped.
Micro	Market mechanism	The process through which demand and supply determine prices.	The economy’s autopilot system.
Micro	Market power	The ability of a firm to influence price and output.	When firms flex their price-setting muscles.
Micro	Market supply	Total quantity supplied by all producers at each price.	What producers will offer to sell.
Trade	Marshall-Lerner condition	A depreciation improves trade balance if export + import elasticities > 1.	Currency drops? Check if it’ll actually help.
Micro	Merit goods	Goods under-consumed if left to the market but beneficial for society.	Like vaccines or education – good for you and others.
Micro	Microeconomics	Study of individual markets, firms, and consumers.	The economics of small, powerful decisions.
Development	Microfinance	Provision of small loans to those without traditional banking access.	Small loans, big dreams.
Macro	Minimum reserve requirements	The minimum percentage of deposits banks must keep as reserves.	Banks’ safety buffer – not all cash is loanable.
Macro	Mixed economy	An economy with both market and government decision-making.	Capitalism with a seatbelt.
Macro	Monetarist/new classical revolution	A school emphasising control of money supply over fiscal policy.	“Keep the money steady, and step back.”
Macro	Monetary policy	Central bank actions involving interest rates and money supply to influence the economy.	Central bank’s economic steering wheel.
Trade	Monetary union	A group of countries using a common currency and central bank.	Same money, shared rules.
Macro	Money supply	Total quantity of money in the economy at a given time.	The economy’s cash pool.
Micro	Monopolistic competition	A market with many sellers offering slightly different products.	Coffee shops: same caffeine, different vibes.
Micro	Monopoly	A market dominated by a single seller with market power.	The boss of the whole market.
Micro	Moral hazard	When one party takes risks because another bears the cost.	“You’ll pay? Great, I’ll gamble.”
Development	Multidimensional Poverty Index (MPI)	A measure of poverty including education, health, and living standards.	Poverty beyond money – a fuller picture.
Macro	National income	Total income earned in a country over one year.	The nation's paycheck.
Macro	Natural rate of unemployment	Unemployment that exists when the economy is at full capacity.	Even in boom times, not everyone’s working.
Micro	Necessity goods	Goods for which demand increases with income, but less than proportionately.	Rice, bread, water – basics that rise slowly.
Micro	Negative externalities of consumption	Costs to third parties from consumption of a good.	Smoking affects your lungs—and mine too!
Micro	Negative externalities of production	Costs to third parties from the production process.	Factory fumes don’t stop at the factory gate.
Macro	Net exports (X-M)	The value of exports minus the value of imports.	Exports > imports? You're in the green.
Macro	Nominal gross domestic product	GDP measured in current prices, unadjusted for inflation.	It’s GDP with no inflation filter.
Macro	Nominal interest rates	The stated rate of interest, not adjusted for inflation.	What banks advertise, but not always what you “earn.”
Micro	Non-collusive oligopoly	An oligopoly where firms compete without formal agreements.	Quiet competition between giants.
Micro	Non-excludable	A good you can't stop others from using.	You can’t charge someone to enjoy the sun.
Development	Non-government organization (NGO)	Independent group working towards social or development goals.	The world’s helpers without government ties.
Trade	Non-produced, non-financial assets	Assets like land, patents or rights traded internationally.	Things you can sell but not manufacture.
Micro	Normal goods	Goods for which demand increases as income rises.	As you earn more, you upgrade your coffee.
Theory	Normative economics	Economics based on opinions and value judgments.	The “should” side of economics.
Micro	Nudge theory	Suggests that small changes in choice design can influence behaviour.	A gentle push, not a shove, to do what’s best.
Development	OECD Better Life Index	Index measuring well-being across multiple life domains.	It’s not all about GDP—happiness matters too.
Macro	Official borrowing	Loans taken by governments from international institutions or other countries.	Governments getting cash—officially.
Development	Official foreign aid	Aid given by governments to support other countries.	Country-to-country financial support.
Micro	Oligopoly	A market dominated by a few large firms.	Big players, tight space, and lots of watching each other.
Macro	Open market operations	Central bank buying or selling government bonds to control the money supply.	How central banks inject or absorb money.
Micro	Opportunity cost	The next best alternative foregone when a choice is made.	Choosing Netflix means skipping the gym.
Micro	Perfect competition	A market with many buyers and sellers, identical products, and no barriers to entry.	Pure economics fantasy land.
Micro	Perfect information	When all market participants have access to the same data.	Everyone knows everything—no secrets!
Micro	Perfectly elastic demand	Demand drops to zero if the price increases.	Raise the price? No one buys.
Micro	Perfectly elastic supply	Supply becomes zero if the price falls.	One price only—anything less, producers walk.
Micro	Perfectly inelastic demand	Quantity demanded does not change with price.	Price goes up or down—still buying!
Micro	Perfectly inelastic supply	Quantity supplied does not change with price.	You get what you get—price changes won’t matter.
Macro	Phillips curve	Shows the short-run trade-off between inflation and unemployment.	Less joblessness usually means more inflation.
Micro	Pigouvian taxes	Taxes to correct negative externalities.	Taxing bad behaviour (like pollution).
Macro	Planned economy	An economy where decisions are made centrally by the government.	Government decides what’s made, how, and for whom.
Theory	Porter hypothesis	Argues that strict environmental regulations can drive innovation.	“Going green” can make firms lean.
Trade	Portfolio investment	Buying stocks, bonds, or other financial assets in another country.	Investing abroad without owning a factory.
Theory	Positive discrimination	Policies that favour disadvantaged groups.	Helping the underdogs catch up.
Theory	Positive economics	Based on facts and testable theories.	The “what is” of economics.
Micro	Positive externalities of consumption	Benefits to third parties from consumption of a good.	Your flu shot protects your neighbour too.
Micro	Positive externalities of production	Benefits to third parties from producing a good.	A beekeeper helping nearby farms.
Development	Poverty	Inability to meet basic needs such as food, shelter, and clothing.	Living on the edge—without a safety net.
Development	Poverty trap/cycle	Self-reinforcing cycle where poverty perpetuates poverty.	Poor today, poorer tomorrow, unless something changes.
Trade	Preferential trade agreement	A deal giving special trade advantages to partner countries.	A club with lower import taxes for members.
Micro	Price ceiling (maximum price)	A legal limit preventing prices from rising above a certain level.	Rent control, anyone?
Micro	Price controls	Government rules setting max or min prices.	When the government tells markets what’s fair.
Macro	Price deflator	Index used to adjust nominal GDP to real GDP.	Stripping inflation to see true GDP.
Micro	(Price) elastic demand	Demand responds strongly to a price change (PED > 1).	Price hike? Buyers disappear.
Micro	(Price) elastic supply	Supply responds strongly to a price change (PES > 1).	Price up? Suppliers flood the market.
Micro	(Price) inelastic demand	Demand barely changes with price (PED < 1).	Toothpaste: you’ll still buy it, price or no.
Micro	(Price) inelastic supply	Supply barely changes with price (PES < 1).	Can’t grow more oranges overnight!
Micro	Price elasticity of demand (PED)	Measures responsiveness of demand to price changes.	How much do people care about price?
Micro	Price elasticity of supply (PES)	Measures responsiveness of supply to price changes.	How fast can firms react to price?
Micro	Price expectations	Beliefs about future price changes.	“I’ll wait till it’s on sale.”
Micro	Price floor (minimum price)	A legally set minimum price, usually above equilibrium.	Think minimum wage or guaranteed crop prices.
Micro	Price mechanism	The use of supply and demand to allocate resources.	Markets playing matchmaker between buyers and sellers.
Trade	Primary commodities	Raw materials extracted from nature.	Straight from the earth—no fancy packaging yet.
Trade	Primary sector	Economic activities like farming, fishing, and mining.	The "dig it or grow it" part of the economy.
Trade	Privatisation	Transferring ownership from government to private hands.	From public to profit.
Micro	Producer surplus	The difference between the price received and the minimum price a producer is willing to accept.	Bonus cash for producers.
Micro	Production possibility curve (PPC)	Shows maximum output combinations given resources and tech.	Your economy’s workout limits.
Macro	Productive capacity	The total output an economy can produce with full resource use.	What your economy could do at full steam.
Micro	Profit maximisation	Producing at the output level where total profit is highest.	Making the most dough possible.
Micro	Property rights	Legal control over the use of resources.	Owning stuff and having the law back you up.
Micro	Proportional tax	A tax with a constant rate regardless of income.	Everyone pays the same percentage—flat rate.
Micro	Public goods	Goods that are non-rivalrous and non-excludable.	You can’t stop me using it, and my use doesn’t reduce yours.
Macro	Public/private partnerships	Collaborations between government and private sector to provide goods or services.	The public purse meets private profit.
Macro	Purchasing power parity (PPP)	Adjusts exchange rates based on cost of living differences.	Comparing basket prices, globally.
Macro	Quantitative easing	Central bank buys assets to inject money into the economy.	Monetary caffeine shot.
Micro	Quantity demanded	The amount consumers are willing to buy at a given price.	“How many can I get for that price?”
Micro	Quantity supplied	The amount producers are willing to sell at a given price.	“I’ll sell this many—if the price is right.”
Micro	Quasi-public goods	Goods that are partly public in nature.	Almost free and shared—but not quite.
Trade	Quota	A limit on the number or value of imports.	Importing? There’s a cap on that.
Micro	Rationing	Controlling access to scarce resources.	“One per person!” says the shop.
Macro	Real GDP	GDP adjusted for inflation.	GDP with inflation goggles off.
Macro	Real GDP per person (per capita)	Real GDP divided by the population.	The economic pie, sliced per person.
Macro	Real GNI per person (per capita)	Real GNI divided by population, includes foreign income.	Your true national income per head.
Macro	Real interest rates	Nominal interest rates adjusted for inflation.	What your money really earns or costs.
Development	Relative poverty	Poverty measured in relation to average income.	Poor compared to your neighbours.
Development	Remittances	Money sent home by workers living abroad.	Paychecks crossing borders.
Macro	Reserve assets	Foreign currencies or gold held by a central bank.	Central banks’ emergency piggy banks.
Behavioural	Restricted choices	Limited options available to a consumer or decision-maker.	You get to choose… but from just these three.
Trade	Revaluation	An increase in a currency’s value in a fixed exchange system.	A stronger fixed currency—by official choice.
Micro	Rivalrous	When one person’s use of a good reduces another’s ability to use it.	My ice cream? You can’t eat it too.
Behavioural	Rules of thumb	Simple strategies or mental shortcuts for decision-making.	Brain hacks for quick calls.
Micro	Satisficing	Meeting acceptable goals rather than maximising.	Good enough, not perfect.
Theory	Say's Law	Supply creates its own demand.	“Build it, and they will buy.”
Theory	Scarcity	The basic economic problem of limited resources and unlimited wants.	Not enough to go around. Ever.
Micro	Screening	Efforts to uncover hidden information in a transaction.	Investigating before investing.
Macro	Seasonal unemployment	Joblessness due to predictable seasonal shifts in demand.	Ski instructor in summer? Out of work.
Macro	Short-run aggregate supply (SRAS)	Output supplied when some production costs are fixed.	The supply sprint—not the marathon.
Macro	Short-run Phillips curve	Shows inverse relationship between inflation and unemployment in the short run.	Trade-offs between jobs and inflation.
Micro	Signalling	Providing information to influence choices or outcomes.	Wearing a suit to signal “I’m serious.”
Micro	Signalling effect	The message that prices send to buyers and sellers.	Rising prices = “Produce more!”
Behavioural	Social conformity	Adjusting behaviour to fit social norms.	Going along with the crowd.
Development	Social enterprise	A business with a social or environmental mission.	Doing good while doing business.
Development	Social safety net	Government support to protect vulnerable citizens.	Welfare, benefits, and a cushion when you fall.
Theory	Social sciences	The study of human society and social relationships.	Economics, but with friends from sociology and politics.
Micro	Social/community surplus	The sum of consumer and producer surplus.	The total economic happy place.
Micro	Socially optimum output	Output where marginal social benefit equals marginal social cost.	The perfect economic balance.
Micro	Stakeholder	Any individual or group affected by an economic decision.	Anyone with skin in the game.
Development	Standard of living	The level of wealth, comfort, and access to goods and services.	How well you live—not just how much you earn.
Macro	Structural unemployment	Long-term joblessness due to mismatches in skills and job needs.	Wrong skills, wrong time.
Micro	Subsidies	Payments to producers or consumers to encourage production or use.	Government helps you help the economy.
Trade	Subsidy (international)	Government support to domestic firms competing internationally.	Helping local firms battle global giants.
Micro	Substitutes	Goods that can replace each other in consumption.	Coke or Pepsi—your call.
Micro	Substitution effect	A price fall leads consumers to switch to that good.	Swapping steak for chicken when it’s cheaper.
Micro	Supply	The quantity producers are willing to sell at different prices.	What’s available—at what price.
Micro	Supply curve	A graphical representation of the relationship between price and quantity supplied.	Drawn from “sell more at higher prices” logic.
Macro	Supply-side policies	Policies aimed at increasing potential output by improving productivity.	Boosting what the economy can do.
Development	Sustainability	Meeting today’s needs without harming future generations.	Use wisely, leave some for tomorrow.
Development	Sustainable development	Development that balances economic, social, and environmental goals.	Growing smart, not just fast.
Trade	Tariff	A tax on imported goods.	Making imports more expensive—on purpose.
Micro	Tastes	Consumer preferences that influence demand.	Why you like iced coffee but I don’t.
Micro	Total revenue	Price × quantity sold.	The firm’s cash register total.
Trade	Tradable permits	Licences allowing pollution, which can be bought and sold.	Legal right to pollute—with limits.
Trade	Trade liberalisation	Removing barriers to free international trade.	Let the goods flow freely!
Trade	Trade protection	Policies that restrict imports to protect domestic industries.	Keeping local producers safe from imports.
Micro	Tragedy of commons	Overuse of a shared resource due to individual incentives.	Everyone’s sheep ruins the pasture.
Development	UN sustainable development goals (SDGs)	17 global goals set by the UN to end poverty and protect the planet.	The world’s to-do list.
Macro	Unemployment	The number of people actively seeking work but without a job.	Willing to work, but jobless.
Macro	Unemployment benefits	Financial support from the government for unemployed people.	Support while you job hunt.
Macro	Unemployment rate	The percentage of the labour force that is unemployed.	A job market health check.
Micro	Unitary elastic demand	Demand changes proportionally with price (PED = 1).	10% price change = 10% quantity change.
Micro	Unitary elastic supply	Supply changes proportionally with price (PES = 1).	Price up 5%, supply up 5%.
Development	Universal basic income	Regular, unconditional cash payment to all citizens.	Everyone gets paid—no strings.
Micro	Utility	Satisfaction gained from consuming a good or service.	The “mmm” factor.
Macro	Wealth	The total value of assets owned.	What you own—not what you earn.
Macro	Weighted price index	An index measuring average price changes, giving weight to more important items.	Inflation measured smarter.
Micro	Welfare loss	The loss of economic efficiency due to market failure.	What we miss out on when markets mess up.
Development	World Bank	A global institution that lends money to developing countries.	Big loans for big problems.
Trade	World Trade Organization (WTO)	An international body that governs trade rules and settles disputes.	The referee for global trade.

How useful are the key terms for IB Economics?

Want to score a Level 7 in IB Economics? It all starts with how well you speak the language of the subject.

Yes, understanding the concepts matters—but at IB Economics, the difference between a 5 and a 7 often comes down to how precisely you express those concepts. That’s where this IB Economics glossary comes in: a complete list of 328 key terms that you need to learn, apply, and master.

Examiners aren’t just looking for “ideas”—they’re looking for accurate, well-structured arguments grounded in the exact key terms of IB Economics. A strong answer isn’t just smart—it’s fluent in economic language.

Let’s look at a few examples:

🟠 Poorly written:
“Too much demand can lead to rising prices.”

🟡 Decent but vague:
“When aggregate demand increases faster than aggregate supply, prices might go up.”

🟢 Level 7-worthy:
“An increase in aggregate demand beyond the full employment level of output creates an inflationary gap, leading to demand-pull inflation.”

What’s the difference? Key terms. Precision. IB Economics fluency. That’s exactly what this page is here to help you learn.

Why This IB Economics Glossary Will Help You Level Up

Every definition on this page is clearly written, exam-ready, and aligned with the IB Economics syllabus. But this isn’t about passive memorisation. You need to apply these key terms actively—in Paper 1 essays, Paper 2 structured responses, and even Paper 3 data responses.

Imagine writing a paragraph about market failure and forgetting to mention terms like externalities, allocative inefficiency, or socially optimum output. Your argument might be okay—but without those IB Economics key terms, you’re not unlocking top marks.

When you learn and apply these terms, you can write:

✔ “Negative externalities result in a divergence between marginal private and marginal social costs, leading to overproduction relative to the socially optimum level.”

Instead of: “Pollution is bad and causes too much production.”

✔ “A price ceiling set below equilibrium creates excess demand, resulting in a shortage.”

Instead of: “Prices can be too low and cause problems.”

✔ “Monopolistic competition is characterised by many firms producing differentiated products with low barriers to entry.”

Instead of: “There are lots of similar businesses in this market.”

How to Use This IB Economics Key Terms Glossary

This isn’t just a glossary—it’s your 328-step path to becoming fluent in IB Economics. Here’s how to make the most of it:

🔹 Learn each definition by writing it out in your own words.
🔹 Use at least three key terms per paragraph in extended responses.
🔹 Practice defining terms without looking—quiz yourself or a study partner.
🔹 Build practice essays around 5–7 key terms and review how they interconnect.

Mastering these IB Economics definitions won’t just boost your understanding—it’ll transform your writing. With consistent practice and smart application, this glossary can take you from solid to exceptional.

So dive in. Learn the language. Own your key terms. And start writing like a Level 7 candidate. 🚀