Principles of Microeconomics

Production Possibilities Frontier

A curve showing the maximum attainable combinations of two products that may be produced with available resources and current technology.

Opportunity Cost

The highest-valued alternative that must be given up to engage in an activity.

Comparative Advantage

The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.

Market

A group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade.

Product Markets

Markets for goods—such as computers—and services—such as medical treatment.

Factor Markets

Markets for the factors of production, such as labor, capital, natural resources, and entrepreneurial ability.

Factors of Production

The inputs used to make goods and services.

Perfectly Competitive Market

A market in which there are many buyers and sellers, all the products are identical, and there are no barriers to new sellers entering the market.