Economics Dictionary for IGCSE, GCE A-Level, AP, and IB Diploma
This is a brief set of key Economic terms that may be useful for Hong Kong students, who are learning Economics for IGCSE, GCE A-Level, AP, of IB Diploma. If there are any terms that you would like to be added, please contact us.
Absolute advantage (HL) – can produce more goods or services with the same resources
Accelerator (HL) – Keynesian investment level depends on changes in national income
Accounting costs (HL) – explicit monetary production costs
Ad valorem tax – indirect tax expressed as a percentage of price (VAT)
Administrative obstacles or regulatory barriers – government regulations that cause imports to decrease to protect domestic industries
Aggregate demand – planned domestic spending on goods and services at various possible average price levels during a specified time period
Aggregate supply – planned output of goods and services at various possible price levels during a certain period of time
Aid – flow of capital to developing countries in the form of grants or low interest rate loans
Allocative efficiency – when marginal benefit is equal to marginal cost
Anti-dumping duties – tariff imposed on import price of good being dumped to reduce harm on domestic industry
Appreciation – the increase in value, strengthening of the currency, or increase in the exchange rate
Balance of Payments (BOP) – record of all transactions a nation makes, over a given period of time, with other nations, consisting of the Current Account and Capital Account
Barrier to entry – things that make it difficult for new firms to enter the market
Basic economic question – what to make for whom
Bilateral aid – when the government of one country provides aid to the government of another country
Breakeven output – total revenue is equal to total costs of production
Budget deficit – when spending is more than revenues
Buffer stocks – buying surplus stock during a good harvest to stabilize the price
Business cycle – fluctuations in real GDP often referred to as peaks, recessions, depressions, troughs, recoveries, and booms.
Capital – means of production such as factories, machines, equipment, and tools
Capital account of Balance of Payments – foreign direct investments in and out of a country over a given period of time
Capital flight – financial capital quickly exiting a country
Cartels – formal collusion by oligopolies who behave like a monopoly, driving up price, often achieved by restricting output
Centrally planned (command) economy – the government sets prices and output of goods and services
Ceteris paribus – all other things remain constant
Circular flow of income model – shows how money, factors of production, goods, and services flow around the economy among households, firms, financial markets, overseas markets, and the government
Collusive oligopoly – firms agree (formally or tacitly) to fix price, reduce supply, or engage in non competitive behavior, which is illegal in the UK, USA, and Hong Kong
Commodities – primary raw material products that are not easily differentiated, like iron ore or wheat
Commodity agreements – quotas or buffer stock systems to stabilize prices
Commodity concentration of exports – a few commodities make up a large percentage of export revenue, usually of a developing country
Common market – free trade and movement of factors of production among members
Comparative advantage – goods or services can be produced at a lower opportunity cost
Consumption externality – cost are imposed or benefits are enjoyed by third parties not directly involved in the consumption transaction
Contestable market – price efficient markets with low cost of entry or exit
Cost-push inflation – supply shocks caused by the increasing price of commodities, especially oil
Cross-price elasticity of demand – % change in quantity demanded of good X / % change in the price of good Y
Crowding-out – when expansionary fiscal spending causes increased interest rates, which leads to reduced private sector spending
Current account of the balance of payments – value of exports and imports of goods and services over a specific period of time
Customs unions – economic integration to abolish tariffs and trade barriers and strengthen position when negotiating with non-members
Cyclical unemployment – a decrease in employment caused by a contraction in the business cycle
Deflationary gap – when actual aggregate demand is less than planned aggregate demand
Demand for money – the amount of money that people are willing to hold at each and every interest rate
Demand pull inflation – when aggregate demand is greater than aggregate supply and drives up prices
Depreciation of exchange rate – the external value of the currency falls when measured against foreign currencies
Economic cycle – the economy in the long run will fluctuate and have expansions or peaks and contractions or troughs
Exchange rate – the price of currencies when measured against other currencies
Financial crowding out – when government spending competes with private sector spending, making things more expensive for the private sector
Fiscal policy – government spending and taxation to influence economic growth
Forward exchange rate market – when the price is set today to trade currencies in the future
Frictional unemployment – occurs naturally when people are between jobs
Game theory – describes the behaviour of oligopolies as they compete with one another
Gini Coefficient – measures income inequality
Gross Domestic Product (GDP) – measures the final value of goods and services produced in an economy over a specific period of time
Human Development Index (HDI) – a measure of economic development based on life expectancy, level of education, and real GDP per capita at purchasing power parity
Infant industry – A new industry that is still relatively small and has not benefited from economies of scale or any competitive advantage
Inflation – an increase in the general price level caused by an increase in demand or an increase in the cost of supplies
Inflationary gap – when actual aggregate demand is above planned aggregate demand
Injection – an increase in investment, government spending, or exports which increases the circular flow of income
Interest rate – the opportunity cost of borrowing or saving money
Involuntary unemployment – the number of people who are willing and able to work at a given wage, but are not able to find employment
J Curve – when a currency is depreciated, the balance of trade may become worse in the short run before it improves in the long run
Laffer Curve – shows the relationship between the tax rate imposed by the government and the level of tax revenue collected
Less developed country – a nation with low level of income, life expectancy and literacy
Liquidity preference – the demand for money in terms of holding cash instead of long term assets and investments
Lorenz Curve – shows income inequality by graphing the proportion of income earned by a given proportion of the population in an economy
Marginal Efficiency of Capital (MEC) – the expected rate of return on investment projects
Marginal Productivity Theory – the demand for labour depends on the marginal revenue product
Marginal Propensity to Consume – the proportion spent on consumption out of each extra unit of income
Marginal Propensity to Import – the proportion spent out of each extra unit of income on Imports
Marshall Lerner Condition – the depreciation in exchange rate will improve the current account if the price elasticity of demand for imports plus the price elasticity of demand for exports is greater than 1
Menu costs – the cost of changing menus and price lists when inflation occurs
Monetary policy – a government policy usually implemented by a central bank to affect the control of money supply or interest rates to influence economic growth
Monopoly – theoretically, when there is only one seller in the market or legally in the UK, when one firm has 25% market share
Multiplier effect – an increase in aggregate demand leads to a greater increase in national income, one’s spending becomes another’s earnings
National debt – the total accumulated debt of the government
Net investment – gross investment minus depreciation
Paradox of Thrift – an economic theory that states the when individuals increase their savings rates during an economic downtown, they deepen and lengthen the downturn, making things worse for themselves
Phillips curve – shows the short-run and long-run inverse relationships between inflation and unemployment
Potential economic growth – when there is an increase in the capacity of the economy
Poverty Trap – when individuals are worse off if they work because they will lose unemployment benefits and need to pay increased taxes
Precautionary demand of money – to hold money in case of emergency
Progressive tax – when the average tax rate increases with income
Protectionism – when a government protects domestic firms against foreign competition
Purchasing Power Parity (PPP) – used to inflation rates and exchange rates by standardizing the units of measure across countries
Quantity theory of money – the total amount of money in the economy multiplied by the velocity of circulation is equal to the general price level multiplied by the quantity of transactions: MV = PT
Quota – the amount that a firm or country can produce or purchase or import or export
Recession – when an economy experiences negative growth during two consecutive fiscal quarters
Regressive tax – when the average rate of taxation decreases as income increases
Regulatory capture – when the government regulator acts in the best interest of the industry being regulated, instead of the public, which may also be considered as a conflict of interest
Speculative demand of money – to hold money instead of less liquid assets
Tariff – tax placed on imported products
Terms of trade – measures the value of imports and exports between two countries
Trade creation – when trade shifts from a high-cost producing nations to low-cost producing nations to enjoy comparative advantage
Trade diversion – when joining a Custom Union leads to a shift from trade from lower-cost nations to higher-cost nations because of the protectionists measures are implemented against non members
Transaction demand of money – money needed to finance day today transactions
Unemployment rate – the number of people who are currently looking for work, but are currently without a job, expressed as a percentage of the labour force
Velocity of circulation – the number of times that money, on average, is spent on goods and services over a given period of time
Vertical equity – when there is a redistribution of income or wealth from the rich to the poor
Voluntarily unemployment – when people who are looking for work are not willing to accept the given wage rate
Withdrawal – a leakage from the economy that reduces aggregate demand: imports, savings, and taxes