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Production Possibilities Frontier (PPC)
A graphical representation showing the maximum combination of two goods or services that can be produced with available resources and technology.
Inefficient Production
A situation where resources are not fully utilized, but production is still possible.
Unattainable Production
A production level that cannot be reached without additional resources or trade.
Opportunity Costs and PPC Shape
If the PPC is concave, opportunity costs increase as resources are less suited to both goods. If the PPC is a straight line, opportunity costs are constant.
Outward PPC Shift
An expansion of the PPC due to improvements in resources, quality, quantity, or technology.
Inward PPC Shift
A contraction of the PPC caused by a decline in resource quality or quantity.
Demand Increase (Shift)
When demand rises, both price and quantity increase.
Demand Decrease (Shift)
When demand falls, both price and quantity decrease.
Supply Increase (Shift)
When supply increases, price decreases, and quantity increases.
Supply Decrease (Shift)
When supply decreases, price rises, and quantity decreases.
Consumer Surplus
The difference between what consumers are willing to pay and what they actually pay, represented as the area above the price line and below the demand curve.
Producer Surplus
The difference between the price producers receive and their marginal production cost, represented as the area below the price line and above the supply curve.
Economic Surplus
The total of consumer surplus and producer surplus, reflecting total economic welfare.
Price Floor
A minimum price set by the government, above the equilibrium price, causing excess supply and deadweight loss.
Price Ceiling
A maximum price set by the government, below the equilibrium price, leading to excess demand and deadweight loss.
Per-Unit Tax
A tax imposed on each unit of a good sold, leading to a shift in the supply curve and creating deadweight loss.
International Trade (No Tariff)
In a free trade environment, the world price sets the equilibrium, and the quantity imported is the difference between domestic production and consumption.
International Trade (With Tariff)
A tariff raises the price paid by consumers, reduces imports, and creates tax revenue for the government, along with deadweight loss.
Firm's Average Fixed Costs (AFC)
Fixed costs per unit of output, calculated by dividing total fixed costs by quantity produced.
Firm's Average Variable Costs (AVC)
Variable costs per unit of output, calculated by dividing total variable costs by quantity produced.
Monopoly Price and Quantity (Unregulated)
A monopoly maximizes profit by setting marginal revenue equal to marginal cost, leading to a higher price and lower quantity than in perfect competition.
Monopoly Deadweight Loss
The inefficiency in a monopoly, represented by the triangle between the price set by the monopoly and the socially optimal price (where P = MC).
Monopolistic Competition Long-Run Equilibrium
In the long run, firms in monopolistic competition earn zero economic profit, and the price equals average total cost (ATC), but the firm is not productively or allocatively efficient.
Perfectly Competitive Factor Market
In a perfectly competitive labor market, the wage rate is determined by the intersection of labor supply and labor demand curves, and firms hire workers where marginal resource cost equals marginal revenue product.
Monopsony
A market with a single buyer of labor, which leads to lower wages and fewer workers being hired compared to a competitive market.
Lorenz curve
A graphical representation used to measure the distribution of wealth or income within a country. It shows the cumulative percentage of total income or wealth against the cumulative percentage of the population.
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