Economics: Production Possibilities Frontier and Related Concepts (Vocabulary)

Vocabulary flashcards covering key concepts from the lecture notes on production possibilities, opportunity cost, economic growth, and gains from trade.

Production Possibilities Frontier (PPF)

A curve showing the maximum feasible combinations of two goods that can be produced with available resources and technology; marks the boundary between attainable and unattainable production bundles.

Scarcity

The condition that resources are limited relative to wants, forcing tradeoffs and choices about production and consumption.

Opportunity Cost

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

Tradeoff

A situation in which obtaining more of one thing requires giving up something else.

Attainable

Points that can be produced with current resources and technology.

Unattainable

Points outside the current production possibilities frontier that cannot be produced given resources and technology.

Efficient Production Point

A point on the PPF where one good cannot be increased without decreasing another; productive efficiency.

Inefficient Point

A point inside the PPF where resources are underutilized or misallocated.

Economic Growth

An outward shift of the PPF, enabling more production in the future; caused by factors like technology, capital stock, and human capital.

Technological Progress

Improvements in technology that allow more output from the same inputs, shifting the PPF outward.

Capital Accumulation

Increase in a nation’s stock of capital goods, which can expand production possibilities and promote growth.

Human Capital

The skills, knowledge, and health that workers possess, contributing to higher productivity and growth.

Comparative Advantage

The ability to produce a good at a lower opportunity cost than another producer.

Absolute Advantage

The ability to produce more of a good with a given set of resources than another producer.

Gains From Trade

The increase in total output that results when countries specialize according to comparative advantage and trade.

Specialization

Focusing production on a particular good or range of goods to exploit comparative advantages.

Dynamic Comparative Advantage

The idea that comparative advantages can change over time due to factors like learning-by-doing.

Learning-by-Doing

The process by which productivity increases as workers gain experience producing a good.

Marginal Cost

The opportunity cost of producing one more unit of a good or service.

Marginal Benefit

The additional benefit received from consuming one more unit of a good or service.

Efficient Use of Resources

Allocating resources so that no one can be made better off without making someone else worse off; often associated with MB = MC.

Allocative Efficiency

A state where the mix of goods produced maximizes social welfare; the marginal benefit of the last unit produced equals its marginal cost.

Market

A system or arrangement that enables buyers and sellers to exchange goods and services, guided by prices.

Property Rights

Legal rights to own, use, and dispose of resources; essential for productive exchange and investment.

Intellectual Property

Legal rights protecting creations of the mind, such as copyrights and patents.

Double Coincidence of Wants

The unlikely situation in barter where two parties each desire what the other has.

Circular Flows (Markets)

The continuous movement of resources and money through markets where households and firms interact.

Slope of the PPF

Represents the opportunity cost of one good in terms of the other—the rate at which one good must be sacrificed to produce more of the other.

Bowed-Outward PPF

A PPF shape indicating increasing opportunity costs as more of one good is produced.

Outward Shift (PPF)

An expansion of production possibilities due to growth factors like technology or capital.

Inward Shift (PPF)

A reduction in production possibilities often due to negative shocks like disasters or resource depletion.

Gains From Trade (Specialization)

Increases in total welfare when countries specialize according to comparative advantage and trade.

Opportunity Cost is a Ratio

The rate at which one good must be sacrificed to produce another, often expressed as the slope of the PPF.

scarcity boundary

Not a standard term; used here to reference the boundary delineating feasible from infeasible production.

Tradeoff vs Opportunity Cost

Tradeoff describes the general sacrifice; opportunity cost is the specific value of the best alternative forgone.

Efficiency vs Growth

Efficiency refers to optimal use of current resources; growth refers to expanding future production possibilities.

Market Coordination

Prices and incentives in markets coordinate individual decisions toward socially desirable outcomes.

Property Rights and Markets

Two fundamental institutions that enable trade: secure property rights and active markets.

Capital Goods

Goods used to produce other goods and services, such as tools, machines, and buildings.

Consumption Goods

Goods and services purchased for immediate use by households.

Human Capital Accumulation

Investments in education, training, and health that increase a worker’s productivity.

Technological Change

Improvements in technology that shift the production possibilities frontier outward.

Investment

Spending on capital goods that supports future production and growth.

Domestic vs Global CA

Comparative advantage can drive gains from trade between countries, regardless of absolute productivity.

Opportunity Cost in Trade

The cost of producing one good in terms of the amount of the other good that must be forgone.

Gains From Trade Across Nations

Wider production possibilities and higher welfare through specialization and exchange.

Parallel MyEconLab Questions

Practice questions used to study, often focusing on opportunity cost and tradeoffs.

Economic Growth Cost

The present sacrifice (e.g., lower current consumption) required to achieve higher future output.

Allocative vs Productive Efficiency

Productive efficiency: on the PPF; Allocative efficiency: optimal mix of goods for society.

Relative Prices

Prices that reflect scarcity and inform resource allocation in markets.

Intertemporal Growth

Growth that occurs when current-saving funds future production capacity.