AP MACROECONOMICS

Production Possibilities Frontier (PPF)

trades off in production

Graph showing combinations of two goods that can be produced

Inefficient

not producing enough

Efficient

produce max amount

Unattainable

More resources

Factors of production must increase

graph shifts outward to meet attainable point

Opportunity Cost

what must be given up to produce more of another good

trade off

moving along the PPF involves a trade off

Economic Growth

more resources or better technology increase production capacity

Absolute Advantage

the ability to produce a good or service using fewer resources than others

Comparative Advantage

The ability to produce a good or service at a lower opportunity cost than others

Application to Trade

Countries specialize based on comparative advantage

trade allows consumption beyond individual production possibilities

both countries gain from trade