IB Tragakes Glossary 2
cross-price elasticity of demand
(XED) A measure of the responsiveness of the demand for one good to a change in the price of another good; measured by the percentage change in the quantity of one good demanded divided by the percentage change in the price of another good. If XED>0 the two goods are substitutes; if XED<0, the two goods are complements.
economic efficiency
A condition that arises when allocative efficiency is achieved.
deflation
A continuing (or sustained) decrease in the general price level.
demand curve
A curve showing the relationship between the quantities of a good consumers (or a consumer) are willing and able to buy during a particular time period, and their respective prices, ceteris paribus (all other things being equal).
deterioration in the terms of trade
A decrease in the value of the terms of trade index.
concentration ratio
A measure of how much an industry's production is concentrated among the industry's largest firms; it measures the percentage of output produced by the largest firms in an industry, and is used to provide an indication of the degree of competition or degree of monopoly power in an industry. The higher the ratio, the greater the degree of monopoly power.
consumer price index
A measure of the cost of living for the typical household; it compares the value of a basket of goods and services in one year with the value of the same basket in a base year. Inflation (and deflation) are measured as a percentage change in the value of the basket from one year to another.
consumer confidence
A measure of the degree of optimism of consumers about their future income and the future of the economy; it is measured on the basis of surveys consumers. Is an important determinant of the consumption component of aggregate demand.
core rate of inflation
A rate of inflation based on a consumer price index that excludes goods with highly volatile (unstable) prices, notably food and energy prices.
composite indicator
A summary measure of more than one indicator, often used to measure economic development; for example the Human Development Index (HDI), that measures income, education and health indicators.
cost-push inflation
A type of inflation caused by a fall in aggregate supply, in turn resulting from increases in costs of production (for example, wages or prices of other inputs), shown in the AD-AS model as leftward shifts of the AS curve.
demand-pull inflation
A type of inflation caused by an increase in aggregate demand, shown in the AD-AS model as a rightward shift in the AD curve
customs union
A type of trading bloc, consisting of a group of countries that fulfil the requirements of a free trade area (elimination of trade barriers between members) and in addition adopt a common policy towards all non-member countries; members of a customs union also act as a group in all trade negotiations and agreements with non-members. It achieves a higher degree of economic integration than a free trade area, but lower than a common market.
cyclical unemployment
A type of unemployment that occurs during the downturns of the business cycle, when the economy is in a recessionary gap; the downturn is seen as arising from declining or low aggregate demand, and therefore is also known as 'demand-deficient' unemployment.
economically less developed countries
According to the World Bank's classification system, includes countries that have a per capital GNI below a particular level (which changes from year to year); some common characteristics include low levels of GDP per capita, high levels of poverty, large agricultural sectors and large urban informal sectors (though it is dangerous to generalise about these characteristics).
current transfers
An item in the current account of the balance of payments, refers to inflows and outflows of funds for items including gifts, foreign aid, and pensions.
dual economy
Arises when there are two different and opposing sets of circumstances that exist simultaneously, often found in economically less developed countries, such as for example, wealthy, highly educated groups co- existing with poor, illiterate groups, a formal and informal urban sector, and a low-productivity agricultural sector and a high-productivity urban industrial sector.
economic development
Broad-based rises in the standard of living and well-being of a population, particularly in economically less developed countries. It involves increasing income levels and reducing poverty, reducing income inequalities and unemployment, and increasing provision of and access to basic goods and services such as food and shelter, sanitation, education and health care services.
distribution of income
Concerned with how much of an economy's total income different individuals or different groups in the population receive, and involves answering the 'for whom' basic economic question.
deciles
Division of a population into ten equal groups with respect to the distribution of a variable, such as income; for example, the lowest income decile refers to 10% of the population with the lowest income.
determinants of aggregate demand
Factors that cause shifts of the aggregate demand curve; include factors that influence consumption spending (C), investment spending (I), government spending (G) and net exports (Xn).
development aid
Foreign aid intended to help economically less development countries; may involve project aid, programme aid, technical assistance or debt relief.
diversification
Generally refers to change involving great variety, and is used to refer to increasing the variety of goods and services produced and.or exported by a country; it is the opposite of specialisation
demerit goods
Goods that are considered to be undesirable for consumers and are overprovided by the market. Reasons for overprovision may be that the goods have negative externalities, or consumer ignorance about the harmful effects.
deficit
In general, this is the deficiency of something compared with something else. (i) In the balance of payments, a 'deficit' in an account occurs when the credits (inflows of money from abroad) are smaller than the debits (outflows of money to other countries); for example, a deficit in the balance of trade means that the value of exports (credits) is smaller than the value of imports (debits). (ii) In the case of the government budget, a 'deficit' occurs when government revenues are smaller than government expenditures.
debit items
In the balance of payments, refer to payments made to other countries, entering the balance of payments accounts with a minus sign; they represent an outflow of foreign exchange from a country.
credit items
In the balance of payments, refer to payments received from other countries, entering the balance of payments accounts with a plus sign; they represent an inflow of foreign exchange into a country.
direct investment
In the balance of payments, refers to inflows or outflows of funds for the purpose of foreign direct investment.
current account
In the balance of payments, this includes the balance of trade (recording exports minus imports of goods) plus the balance on services (recording exports of services minus imports of services), plus inflows minus outflows of income and current transfers. The most important part of the current account in most countries is the balance of trade.
competitive supply
In the case of two goods, refers to production of one or the other by a firm; in other words the two goods compete with each other for the same resources (for example, if a farmer can produce wheat or corn, producing more of one means producing less of the other).
current expenditures
In the government budget, refers to government spending on day-to-day items that are recurring (i.e. repeat themselves) and items that are used up or 'consumed' as a good or service is provided. Include wages and salaries (for all government employees); spending for supplies and equipment for the day-to-day operation of government activities (for example, school supplies and medical supplies for public schools and public health care services); provision of subsidies; and interest payments on government loans.
diseconomies of scale
Increases in the average costs of production that occur as a firm increases its output by varying all its inputs (i.e. in the long run). Diseconomies of scale are responsible for the upward- sloping part of the long-run average total cost curve: as a firm increases its size, costs per unit of output increase.
economic growth
Increases in total real output produced by an economy (real GDP) over time; may also refer to increases in real output (real GDP) per capita (or per person).
demand
Indicates the various quantities of a good that consumers (or a consumer) are willing and able to buy at different possible prices during a particular time period, ceteris paribus (all other things being equal).
economic profit
Is a firm's total revenue minus total economic costs (explicit plus implicit). If economic profit is positive, the firm is earning supernormal (abnormal) profit; if it is zero, the firm is earning normal profit; if it is negative, the firm is making a loss.
concessional loan
Loans that are offered as part of foreign aid, made on concessional terms, i.e. that they are offered at interest rates that are lower than commercial rates, with longer repayment periods.
current account deficit
Occurs when the current account balance has a negative value, meaning that debits are larger than credits (there is an excess of debits).
current account surplus
Occurs when the current account balance has a positive value, meaning that credits are larger than debits (there is an excess of credits).
competition
Occurs when there are many buyers and sellers acting independently, so that no one has the ability to influence the price at which the product is sold in the market.
deregulation
Policies involving the elimination or reduction of government regulation of private sector activities, based on the argument that government regulation stifles competition and increases inefficiency.
demand-side policies
Policies that attempt to change aggregate demand (shift the aggregate demand curve in the AD-AS model) in order to achieve the goals of price stability, full employment and economic growth, and minimise the severity of the business cycle. In the event of an inflationary or recessionary (deflationary) gap, they try to bring aggregate demand to the full employment level of real GDP, or potential GDP. They can also impact on economic growth by contributing to increases in potential GDP. Consists of fiscal and monetary policies. To be contrasted with supply-side policies.
demand management
Policies that focus on the demand side of the economy, attempting to influence aggregate demand to achieve the goals of price stability, full employment and economic growth.
devaluation (of a currency)
Refers to a decrease in the value of a currency in the context of a fixed exchange rate system
depreciation (of a currency)
Refers to a decrease in the value of a currency in the context of a floating (or flexible) exchange rate system or managed exchange rate system (to be compared with devaluation, which is a decrease in currency value in a fixed exchange rate system). (Note that depreciation also refers to capital goods that become worn out and are discarded.)
disinflation
Refers to a fall in the rate of inflation; it involves a positive rate of inflation and should be contrasted with deflation.
conditional assistance
Refers to development assistance provided by bilateral or multilateral development organisations, which is extended to countries on condition that they satisfy certain requirements, usually requiring that they adopt particular policies.
economic integration
Refers to economic interdependence between countries, usually achieved by agreement between countries to reduce or eliminate trade and other barriers between them. There are various degrees of integration, depending on the type of agreement and the degree to which barriers between countries are removed; see trading bloc, free trade area, customs union, common market, monetary union.
contractionary fiscal policy
Refers to fiscal policy usually pursued in an inflation, involving a decrease in government spending or an increase in taxes (or both).
contractionary monetary policy
Refers to monetary policy usually pursued in an inflation, involving an increase in interest rates, intended to lower investment and consumption spending; also known as 'tight monetary policy'.
consumer surplus
Refers to the difference between the highest prices consumers are willing to pay for a good and the price actually paid. In a diagram, it is shown by the area under the demand curve and above the price paid by consumers.
crowding-out
Refers to the possible impacts on real GDP of increased government spending (expansionary fiscal policy) financed by borrowing; if increased government borrowing results in a higher rate of interest, this could reduce private investment spending, thus reversing the impacts of the government's expansionary fiscal policy.
constant returns to scale
Refers to the situation where the output of a firm changes in the same proportion as all its inputs; given a percentage increase in all inputs, output increases by the same percentage. May be contrasted with increasing returns to scale and decreasing returns to scale.
decreasing returns to scale
Refers to the situation where the output of a firm changes less than in proportion to a change in all its inputs; given a percentage increase in all inputs, output increases by a smaller percentage.
consumption
Spending by households (consumers) on goods and services (excludes spending on housing).
direct taxes
Taxes paid directly to the government tax authorities by the taxpayer, including personal income taxes, corporate income taxes and wealth taxes.
corporate indebtedness
The degree to which corporations have debts
dumping
The practice of selling a good in international markets at a price that is below the cost of producing it (usually by providing export subsidies); while it is illegal according to international trade rules, many countries practise it anyway. Forms the basis of the anti-dumping argument in favour of trade protection.
corporate social responsibility
The practice of some corporations to avoid socially undesirable activities, such as polluting activities, employing children, or employing workers under unhealthy conditions; as well as undertaking socially desirable activities, such as support for human rights and donations to charities.
economic costs
The sum of explicit costs and implicit costs, or the total opportunity costs incurred by a firm for its use of resources, whether purchased or self-owned. When economists refer to 'costs' they are actually referring to 'economic costs'
costs of production
The total opportunity costs incurred by firms in order to acquire resources for use in production; include explicit costs (for purchased resources) and implicit costs (for self-owned resources).
complements (complementary goods)
Two or more goods that tend to be used together. If two goods are complements, an increase in the price of one will lead to a decrease in the demand of the other.
