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#ibeconomicskeyterms
Key terms and definitions from the ib economics syllabus
| Term | Definition |
|---|---|
| Scarcity | refers the finite resources (limited in supply) of an economy relative to the unlimited needs and wants of individuals and societies. |
| Choices | refer to the competing options and decisions faced by individuals, households, firms, and governments. |
| The basic economic problem | refers to how best to allocate the economy’s scarce resources to best meet its unlimited wants. It is about addressing the fundamental questions in economics, that is, what, how and for whom production should take place. |
| Needs | are the goods and services deemed to be essential for human survival. Examples include nutritional food, clean water, clothing, shelter (housing), and access to healthcare and education. |
| Wants | are human desires, that is, things people would like to have or have more of. These are infinite (unlimited) as it is human nature to want more things. |
| Factors of production | are the four categories of resources that are required to produce any good or service, namely land, labour, capital and enterprise. |
| Land or natural capital | is one of the four factors of production and refers to the natural resources of the economy. |
| Labour or human capital | is one of the four factors of production and refers to the physical and intellectual efforts of workers to the production process. |
| Capital or physical capital | is a factor of production and refers to non-natural resources used to further the production process. Examples include machinery, equipment, tools, and physical buildings such as factories. |
| Enterprise or entrepreneurship | is a factor of production referring to the ability of particular individuals with the skills to manage and organize the other three factors of production (land, labour, and capital) and their willingness to take risks. |
| Factor incomes or incomes | These comprise rent (the reward for land), wages and salaries (the reward for labour services), interest (the reward for capital) and profit (the reward for enterprise). |
| Goods | are tangible (physical) items that can be produced, bought and sold. Examples include clothing, toothpaste, laptops, smartphones and home furniture. |
| Services | are intangible (non-physical) items provided by individuals and firms and paid for by customers. Examples include haircuts, education, concerts, public transportation and online streaming services. |
| Opportunity cost | refers to costs of an economic decision measured in terms of the best alternative choice forgone. Owing to scarcity, there is always an opportunity cost when making an economic decision (with the exception of free goods). |
| Free goods | are resources or products that are unlimited in supply, so their output has no opportunity cost. Examples include desert sand, air, rainwater and seawater. |
| Basic economic questions | refer to how best to allocate an economy’s finite resources in order to meet its unlimited wants. The fundamental questions are what, how and for whom production should take place. |
| The private sector | is the sector of the economy where private firms and individuals produce goods and services. |
| The public sector | is the sector of the economy where the government produces or supplies certain goods and services. |
| Intervention | is a key concept referring to any kind of involvement of the government in economic activity. The purpose is to improve efficiency and economic well-being. |
| The free market economy | is an economic system that relies on the market forces of demand and supply to allocate scarce resources in the economy. |
| A planned economy | is an economic system where the government (or public sector) allocates scarce resources. |
| A mixed economy | is an economic system that features aspects of both a planned and market economic system, with some resources being owned and controlled by private individuals and firms with others being owned and controlled by the government. |
| The production possibility curve | (PPC) or production possibility frontier (PPF) is a diagrammatic representation of the maximum combination of two products that a country can produce, given the efficient use of all its resources, at any moment in time. |
| The circular flow of income model | is a macroeconomic tool used to explain how activity and national income are determined. |
| A closed economy | is part of the circular flow of income model comprising only domestic economic decision makers, that is, households, firms and the government. |
| The open economy | is part of the circular flow of income model comprising domestic and foreign economic decision makers, that is, households, firms, the government and the foreign sector (which accounts for exports and imports). |
| Economic decision makers | are the economic agents or entities who interact with each other for the purpose of production and consumption. They comprise of households, firms, and governments. |
| Government | refers to the establishment with the administrative authority to oversee, regulate, and control a country or territorial state. |
| Leakages or withdrawals(W) | take money out of the circular flow of the income. They comprise savings (S), taxation (T) and imports (M), that is, W =S+ T + M. |
| Injections(J) | put money into the circular flow of the income. They comprise government spending (G), export earnings (X) and investment expenditure (I). |
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