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Comparative Advantage

The ability of a party to produce a good or service at a lower opportunity cost than another party.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Absolute Advantage

The ability of a party to produce more of a good or service with the same amount of resources than another party.

PPC (Production Possibilities Curve)

A graph that shows the maximum possible output combinations of two goods that can be produced using available resources.

Law of Increasing Opportunity Cost

The principle that the opportunity cost of a good increases as more of that good is produced.

Output Question

A type of question where the focus is on the amount of output produced by each country or producer.

Input Question

A type of question where the focus is on the resources or inputs used to produce a certain amount of output.

Terms of Trade

The agreed-upon conditions at which trade occurs between countries, reflecting the relative value at which goods are exchanged.

Specialization

The process where individuals or countries focus on producing a limited variety of goods to gain a greater degree of efficiency.

Shifters of the PPC

Factors that can cause the PPC to shift outward or inward, such as changes in resources, technology, or workforce.