production possibility frontier

Allocative efficiency

Allocating available resources to produce the kinds of goods and services that consumers want the most.

Diminishing marginal returns

Increasing one input, while holding all other inputs constant, will eventually result in smaller and smaller additions to output.

Economic efficiency

Using all of our resources in a technically and allocatively efficient manner.

Economic model

An abstract description of a part of an economy, simplifying assumptions are made to understand and explain economic events.

Opportunity cost

The value of the best-forgone alternative; the true cost of making a choice is the value of what is given up as a result.

Marginal cost

The increase in costs resulting from an action or from producing one more unit of output.

Principle of increasing marginal costs

As the production of a good increases, the opportunity cost of producing one more unit of output eventually increases.

Production possibilities frontier

An economic model showing possible combinations of outputs, given resources and technology.

Technical efficiency

Using methods to produce goods and services that minimize costs of producing or maximize output given available inputs.