Introduction to Economics and the Production Possibilities Frontier

Initial vocabulary concepts covering the definition of economics, types of resources, economic categories, scarcity effects, and the Production Possibilities Frontier (PPF) framework.

Economics

The science of how individuals and societies deal with the fact that wants are greater than the limited resources available to satisfy those wants.

Scarcity

The condition in which our wants are greater than the limited resources available to satisfy those wants.

Good

Anything from which individuals receive utility or satisfaction.

Utility

The satisfaction one receives from a good.

Bad

Anything from which individuals receive disutility or dissatisfaction.

Disutility

The dissatisfaction one receives from a bad.

Land

All natural resources, such as minerals, forests, water, and unimproved land.

Labor

The physical and mental talents people contribute to the production process, such as a person building a house.

Capital

Produced goods that can be used as inputs for further production, such as factories, machinery, tools, computers, and buildings.

Entrepreneurship

The particular talent for organizing the resources of land, labor, and capital, seeking new business opportunities, and developing new ways of doing things.

Positive Economics

The study of "what is" in economic matters, dealing with cause-effect relationships that can be tested.

Normative Economics

The study of "what should be" in economic matters, dealing with value judgments and opinions that cannot be tested.

Microeconomics

The study of human behavior and choices as they relate to relatively small units, such as an individual, a business firm, an industry, or a single market.

Macroeconomics

The study of human behavior and choices as they relate to highly aggregate markets (e.g., the goods and services market) or the entire economy.

Opportunity Cost

The most highly valued opportunity or alternative forfeited when a choice is made.

Rationing Device

A means of deciding who gets what of available resources and goods, such as the "dollar price."

Production Possibilities Frontier (PPF)

A representation of the possible combinations of two goods that can be produced in a certain period of time under the conditions of a given state of technology and fully employed resources.

Straight Line PPF

A production possibilities frontier indicating constant opportunity costs where the ratio, such as $1:1$, remains unchanged.

Concave Downward PPF

A bowed outward frontier indicating increasing opportunity costs as more of a good is produced.

Law of Increasing Opportunity Costs

The principle that as more of a good is produced, the opportunity costs of producing that good increase because firms must employ resources that are less efficient or appropriate.

Productive Efficiency

The condition where the maximum output is produced with given resources and technology, represented by points on the PPF.

Productive Inefficiency

The condition where less than the maximum output is produced with given resources and technology, represented by any point below the PPF.

Unemployment

In terms of resources, it exists at any productive inefficient point where the economy is not using all of its available resources.

Economic Growth

An increase in production capabilities leading to an outward shift in the PPF, caused by an increase in resources or an advance in technology.

Technology

The body of skills and knowledge involved in the use of resources in production.

Economic System

The way in which society decides to answer key economic questions, specifically: (1) What gets produced? (2) How is it produced? (3) Who gets it?

Mixed Capitalist Economy

An economic system characterized by largely private ownership of factors of production, market allocation of resources, decentralized decision making, and a regulatory role for government.