Macroeconomics: Production Possibility Frontier and Opportunity Cost

Vocabulary flashcards based on the introductory lecture on the Production Possibility Frontier (PPF), points of production, resource allocation, and calculating opportunity cost.

Production Possibility Frontier (PPF)

A graph and visual model that shows different combinations of output an economy can produce given its fixed resources (factors of production) and constant technology at a given point in time.

Efficient Points of Production

Points located directly on the production possibility frontier that represent maximum output achieved when all available, scarce resources are fully utilized.

Inefficient Points of Production

Points located inside the production possibility frontier representing production that is less than full capacity, where resources are wasted, idle, or underutilized.

Infeasible Points of Production

Points located outside or above the production possibility frontier that are currently impossible to produce because the economy's resources and technology cannot support them.

Opportunity Cost

The value of the next best alternative that is forgone or given up when deciding to produce or consume more of a particular good.

Moving Along the PPF

The act of shifting resources from the production of one good to another, demonstrating the trade-offs society faces due to resource scarcity.

Slope of the Production Possibility Frontier

A graphical feature of the PPF that illustrates the rate of trade-off and calculates the opportunity cost of one good in terms of another.

Opportunity Cost Formula for Good Y

A formula defined as $\frac{\text{Number of Good X}}{\text{Number of Good Y}}$, where the quantity of the good whose opportunity cost is being calculated always goes in the denominator.