Production Possibilities Frontier Framework Flashcards

This set of vocabulary flashcards covers the fundamental concepts of the Production Possibilities Frontier (PPF) framework, including efficiency, opportunity costs, and the gains from specialization and trade based on the lecture notes.

Production Possibilities Frontier (PPF)

A graph that shows all possible combinations of output the economy can produce given available factors of production and current technology.

Straight-line PPF

A frontier indicating constant opportunity costs where the trade-off between two goods (e.g., $1:1$ or $2:1$ ratio) remains the same at all points on the line.

Bowed-outward PPF

A concave downward graph indicating increasing opportunity costs, where the slope becomes steeper and the sacrifice of one good increases as more of the other 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, primarily because resources and people have varying abilities.

Scarcity (in PPF)

An economic concept illustrated by the frontier itself, which separates an attainable region from an unattainable region.

Choice (in PPF)

Represented by the necessity of deciding among many attainable combinations of two goods, such as selecting between points $A$ or $B$ on the frontier.

Opportunity Cost (in PPF)

The movement from one point on the frontier to another, where gaining more of one good requires giving up a specific amount of the other good.

Productive Efficiency

The condition where maximum output is produced with given resources and technology, represented by any point directly on the PPF boundary.

Productive Inefficiency

A condition in which less than maximum output is produced, represented by any point below or inside the PPF (such as point $G$).

Unattainable Region

Points located outside the frontier (such as point $Z$) that cannot be reached with current resources and technology.

Unemployment (in PPF)

A state represented by any productive-inefficient point below the PPF where resources are not being fully utilized.

Economic Growth

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

Absolute Advantage

The ability to produce more of a specific good than another producer given the same number of inputs.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer, which serves as the basis for specialization and trade.

Specialization and Trade

The process where individuals or countries focus on goods where they have a comparative advantage and trade for others, allowing consumption beyond their individual PPFs.