Honors Economics - Topic 1: Fundamentals of Economics & Production Possibilities Curve

Vocabulary flashcards covering key concepts from the notes on scarcity, trade-offs, PPC, and factors of production.

Scarcity

Unlimited wants and needs with limited resources.

Shortage

A situation where there is not enough supply to meet demand at a given price.

Trade-offs

The alternatives forgone when making a choice; choosing one option means giving up another.

Production Possibilities Curve (PPC)

A graph showing the maximum feasible output combinations of two goods given resources and technology, illustrating scarcity, choice, opportunity cost, and efficiency.

Assumptions of the PPC

The economy produces only two goods, resources and technology are fixed, and all resources are fully utilized.

Opportunity Cost

The value of the next best alternative forgone when a choice is made.

Guns and Butter

A PPC example showing the trade-off between manufactured goods (guns) and agricultural goods (butter).

Efficiency

Using resources in a way that maximizes output; on the PPC boundary, resources are fully utilized.

Productive Efficiency

Producing at the maximum output with given resources, i.e., on the PPC boundary.

Outward Shift (of the PPC)

An outward shift occurs when resources or technology improve, allowing more production.

Inward Shift (of the PPC)

An inward shift occurs when resources or technology worsen (e.g., disasters, war), reducing potential output.

Land (Factor of Production)

Natural resources used in production; raw materials and land ownership; one of the four factors of production.

Labor (Factor of Production)

Human effort—workers and their wages; the second factor of production.

Capital (Factor of Production)

Human-made resources used to produce goods and services; includes both human capital and physical capital.

Entrepreneurship

People who organize land, labor, and capital to create and run new ventures; the fourth factor of production.

Human Capital

Acquired knowledge and skills of workers through education and experience.

Physical Capital

Man-made inputs like tools, machinery, and buildings used in production.

Marginal Cost (MC)

The increase in total cost from producing an additional unit; formula: MC = ΔTC/ΔQ.

Total Product (TP)

Total output produced from inputs; the overall quantity of goods or services produced.