IB International - Economic Terms and Concepts

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Absolute advantage

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The ability of a country to produce a good using fewer resources than another country.

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Balance of payments

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A record of all economic transactions between residents of a country and the rest of the world over a given time period.

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Capital account

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A component of the balance of payments that includes transfers of capital and acquisition/disposal of non-produced, non-financial assets.

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Comparative advantage

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The ability of a country to produce a good at a lower opportunity cost than another country.

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Current account

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A component of the balance of payments that includes trade in goods and services, income flows, and current transfers.

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Dumping

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The selling of goods in foreign markets at a price below their cost of production or below the price charged in the domestic market.

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Exchange rate

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The value of one currency expressed in terms of another currency.

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Fixed exchange rate

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An exchange rate regime in which a currency’s value is pegged to another currency or basket of currencies.

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Floating exchange rate

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An exchange rate regime where the value of a currency is determined by market forces without direct government or central bank intervention.

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Foreign aid

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Financial or technical assistance given by governments and other agencies to support economic, environmental, social, and political development in developing countries.