Principles of Macroeconomics - Chapter 2 Vocabulary

Vocabulary flashcards covering core economic concepts from Chapter 2, including the Production Possibilities Frontier (PPF), efficiency types, comparative advantage, and economic growth.

Production Possibilities Frontier (PPF)

The boundary between those combinations of goods and services that can be produced and those that cannot.

Attainable Combination

A combination of goods and services that can be produced because there are enough resources to make it.

Unattainable Combination

A combination of goods and services that cannot be produced because there are not enough resources to make it.

Production Efficiency

A condition in which goods and services are produced at the lowest possible cost, occurring when there is no wasting or misallocating of resources and it is impossible to increase the production of one good without decreasing the production of another.

Tradeoff

A choice along the PPF where moving to a different point to increase the production of one good requires making less of another good.

Opportunity Cost

A ratio calculated along the PPF as the decrease in quantity produced of one good divided by the increase in quantity produced of the other good.

Marginal Cost Curve (MC)

A line or curve that plots individual marginal cost points, showing the cost of producing one additional unit of a good measured in terms of units given up of another good.

Marginal Benefit

The maximum amount people are willing to pay for one more unit of a good or service, depending on people's preferences rather than price or the PPF.

Principle of Decreasing Marginal Benefit

The observation that the more people already have of something, the less they are willing to pay for another one.

Allocative Efficiency

Achieved when goods and services are produced at the lowest possible cost and in the quantities that provide the greatest possible benefit, requiring production to be on the PPF where $MB = MC$.

Absolute Advantage

The condition of being more productive than others at doing a specific task.

Comparative Advantage

The ability to perform an activity or produce a good at a lower opportunity cost than anyone else.

Slope of the PPF

A metric that tells us the opportunity cost of the good on the horizontal axis, where a steeper slope indicates a higher opportunity cost.

Economic Growth

The expansion of production possibilities over time.

Technological Change

The development of new goods and of better ways of producing goods and services.

Capital Accumulation

The growth of capital resources, including human capital.