1.2 opportunity cost

Production Possibilities Curve

A model that shows alternative ways an economy can use its scarce resources.

Scarcity

The fundamental economic problem of having seemingly unlimited human wants in a world of limited resources.

Trade-offs

The alternatives that must be given up when one choice is made over another.

Opportunity Costs

The cost of the next best alternative that is foregone when making a decision.

Efficient Production

The condition where resources are used in such a way that maximizes the output of goods and services.

Key Assumptions of PPC

The four main assumptions that underlie the production possibilities curve model.

Two Goods

The assumption that only two goods can be produced in the PPC model.

Full Employment of Resources

The assumption that all available resources are being used efficiently.

Fixed Resources

The assumption that the quantity and quality of resources remain constant (ceteris paribus).

Fixed Technology

The assumption that technology does not change during the analysis of the PPC.

Production Possibilities Table

A table that lists the different combinations of two goods that can be produced with available resources.

Points on the PPC

Each point represents a specific combination of goods that can be produced given full employment of resources.

Production Possibilities Frontier

The curve that represents the maximum possible output combinations of two goods.

Constant Opportunity Cost

A situation where the opportunity cost of producing one good remains the same as more of it is produced.

Increasing Opportunity Cost

A situation where the opportunity cost of producing one good increases as more of it is produced.

Shifting the PPC

The movement of the production possibilities curve due to changes in resources, technology, or trade.

Shifters of the PPC

The three factors that can cause the PPC to shift:change in resource quantity or quality, change in technology, and change in trade.

Capital Goods

Goods that are used to produce other goods, which can lead to increased production of consumer goods.

Change in Production

If the ability to produce does not change, the PPC remains the same, but the mix of goods produced can change.