A-level and IB · Social sciences

IB Economics: concepts and diagrams

IB Economics flashcards covering key concepts, microeconomics, macroeconomics and the global economy, with calculations, diagrams and assessment tips.

36 cards5 topicsAbout 15 minutes a roundIB Diploma Programme Economics (SL and HL) style content, comparable to first-year university principles of economics plus development economics

Independent study material written by StudyBrix, not produced or reviewed by any exam board or by the International Baccalaureate Organization. Check your own specification or subject guide.

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About this deck

This deck is for IB Diploma Economics students at SL or HL and anyone wanting a compact overview of the course. It follows the four units of the current guide (introduction to economics, microeconomics, macroeconomics and the global economy) and uses the course's nine key concepts as a thread: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence and intervention.

The current course is assessed with an extended response paper, a data response paper, an HL-only policy paper and an internal portfolio of three commentaries based on news extracts. If you are comparing with A-level, note that specifications differ between exam boards (AQA, Edexcel, OCR), so readers should check theirs, and IB students should check the guide their school uses.

No previous economics is needed, but you should be confident with percentages, index numbers and reading graphs. Practise drawing each diagram from memory with fully labelled axes, then explain it in a short chain of reasoning tied to a real example. HL students should also work every calculation card, since quantitative questions appear in the papers.

Common mistakes: drawing diagrams without labels or equilibrium points; treating GDP growth as the same thing as development; confusing a tariff with a quota; and evaluating with vague phrases instead of naming stakeholders, time frames and trade-offs. In commentaries, link the article to one key concept clearly.

Before you start: Grade 10 or MYP mathematics (percentages, graphs); an interest in current events helps.

All 36 cards

Cover the definitions with a sheet of paper and test yourself, or use the study modes above.

Introduction and key concepts

Nine key concepts: The ideas the course uses to connect topics: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence and intervention.Example: A carbon tax story can be analysed through sustainability, intervention and equity.
Circular flow of income: A model of money moving between households and firms, with leakages (saving, taxes, imports) and injections (investment, government spending, exports).Example: If injections exceed leakages, national income rises.
Positive versus normative statements: Positive statements can be tested against evidence; normative statements contain value judgements about what ought to be.Example: 'Youth unemployment is 12%' is positive; 'the minimum wage should be higher' is normative.
Rational consumer choice: The standard assumption that consumers have consistent preferences and maximize utility with full information; behavioural economics challenges it.Example: People often stick with default options even when switching would save them money.

Microeconomics

PED and total revenue: When demand is price inelastic, raising price raises total revenue; when it is elastic, raising price lowers revenue.Example: Price from 4 to 5 dollars, quantity from 100 to 90: revenue rises from 400 to 450, so demand is inelastic here.
Allocative efficiency: Resources are allocated so that marginal benefit equals marginal cost (P = MC), giving the largest community surplus.Example: A competitive market without externalities reaches this point at equilibrium.
Indirect tax revenue and incidence: A per-unit tax raises government revenue equal to the tax times quantity sold; its burden is shared according to elasticities.Example: A 3 dollar tax with 400 units sold raises 1200 dollars.
Price floor: A minimum legal price set above equilibrium, creating a surplus that the government may need to buy or store.Example: Minimum crop prices can lead to stockpiles of unsold grain.
Common pool resources: Resources that are rivalrous but non-excludable, so they tend to be overused, threatening sustainability.Example: Open-access fishing grounds are overfished because no one can stop others from fishing.
Tradable permits: A cap on total pollution with permits that firms can buy and sell, so cuts happen where they are cheapest.Example: A firm that cuts emissions cheaply sells spare permits to a firm with high abatement costs.
Asymmetric information: One side of a transaction knows more than the other, which can lead to adverse selection or moral hazard.Example: Insured drivers may take more risks (moral hazard).
Choice architecture: Designing how options are presented, including defaults and ordering, to influence decisions without removing choices.Example: Placing fruit at eye level in a school canteen raises fruit purchases.
Game theory and oligopoly: Studies decisions where each firm's best move depends on rivals' moves; the prisoner's dilemma shows why collusion is unstable.Example: Two firms each gain by cheating on a price-fixing deal, so both end up cutting prices.
Price elasticity of supply: Percentage change in quantity supplied divided by percentage change in price; it is usually greater in the long run as firms adjust capacity.Example: Price up 10%, quantity supplied up 5%: PES = 0.5, inelastic.
Subsidy: A per-unit payment from government to producers that lowers costs, shifting supply right, lowering price and raising quantity.Example: A 2 dollar subsidy per solar panel might cut the market price by 1.20 dollars, with the rest kept by producers.
Normal profit: The minimum profit needed to keep a firm in its industry, counted as a cost; it occurs where total revenue equals total economic cost.Example: In long-run perfect competition, firms earn only this level of profit.

Macroeconomics

Real GDP per capita at PPP: Output adjusted for inflation, divided by population and converted using purchasing power parity so living standards can be compared across countries.Example: Two countries with the same nominal GDP per capita may differ widely once local price levels are included.
Unemployment rate: The number unemployed divided by the labour force, times 100. The labour force includes only those working or actively seeking work.Example: 1.2 million unemployed in a labour force of 20 million gives 6%.
Inflation from a price index: The percentage change in a consumer price index between two periods.Example: CPI from 104.0 to 107.12: (107.12 - 104)/104 * 100 = 3%.
Weighted price index: A price index where each item's price change counts according to its share of typical spending.Example: Food weight 0.3 up 10%, housing weight 0.7 up 2%: overall about 0.3 * 10 + 0.7 * 2 = 4.4%.
Keynesian AS curve: An aggregate supply curve with a flat section at low output (spare capacity), a rising section and a vertical section at full employment.Example: In a deep recession, more aggregate demand can raise output with little effect on prices.
Quantitative easing: A central bank creates money to buy financial assets, aiming to lower long-term interest rates and support spending when policy rates are already very low.Example: Several central banks used it after the 2008 financial crisis.
Crowding out: Government borrowing raises demand for loanable funds and interest rates, which may reduce private investment.Example: A large deficit financed by borrowing can partly offset its own stimulus.
Absolute versus relative poverty: Absolute poverty means income below what is needed for basic needs; relative poverty means income well below the typical level in that society.Example: A household can escape absolute poverty yet remain in relative poverty if national incomes rise faster.
Central bank interest rate policy: Changing the policy interest rate to influence borrowing, spending and inflation; higher rates cool demand and lower rates stimulate it.Example: Cutting the policy rate by 0.5 percentage points makes mortgages cheaper and may raise consumption.
Lorenz curve: A graph of cumulative share of income against cumulative share of population; the further it bows from the diagonal, the greater the inequality.Example: If the poorest 50% earn 20% of income, the curve passes through (50, 20).

The global economy

Terms of trade: Index of average export prices divided by index of average import prices, times 100.Example: Export index 110, import index 125: terms of trade = 88, a deterioration from 100.
Balance of payments accounts: A record of a country's transactions with the rest of the world in three parts: current, capital and financial accounts.Example: A current account deficit is usually matched by a surplus on the financial account.
Fixed exchange rate: A currency value held by the central bank at a set level against another currency, using reserves and interest rates.Example: To defend its peg, a central bank sells foreign reserves to buy its own currency.
Import quota: A legal limit on the quantity of a good that may be imported, raising the domestic price and creating quota rents for importers.Example: A limit of 50000 cars a year raises car prices for domestic buyers.
Customs union: A trading bloc with free trade between members and a common external tariff on imports from outside.Example: Members cannot set their own separate tariffs on outside countries.
Human Development Index: A composite measure of development using health (life expectancy), education (years of schooling) and standard of living (GNI per capita at PPP).Example: Two countries with similar income can rank very differently if one has much lower life expectancy.
Sustainable Development Goals: A set of 17 United Nations goals adopted in 2015 covering poverty, health, education, inequality and the environment.Example: Goal 4 concerns quality education for all.
Microfinance: Small loans and financial services for people without access to regular banks, often used to start small businesses.Example: A loan to buy a sewing machine lets a household earn an income.

Assessment skills

Commentary portfolio: The internal assessment: three commentaries on recent news extracts, each on a different unit (not the introduction) and each using a different key concept.Example: A commentary on a fuel subsidy might focus on the concept of intervention.
Policy paper (HL): An HL paper in which students use provided data and their knowledge to recommend a policy for a stated problem.Example: Recommending a mix of policies to cut youth unemployment in a fictional country, using the data supplied.