ECONOMIC Introduction to Economics: Production Possibility Frontiers, Opportunity Cost, and Trade

Vocabulary practice flashcards covering fundamental economic concepts from the lecture, including opportunity cost, the production possibility frontier, efficiency, shifts in production limits, comparative advantage, tariffs, and equity.

Scarcity of Time

The universal limit faced by every individual regardless of wealth, where having only $24\,\text{hours}$ in a day prevents anyone from doing everything they might want.

Opportunity Cost

The quantity of one good or activity that must be forgone in order to obtain an additional amount of another good or activity.

Principle of Increasing Opportunity Cost

The economic concept that as an individual or society produces more and more of a particular good or activity, the opportunity cost of each additional unit rises because resources less suited to its production must be utilized.

Production Possibility Frontier (PPF)

A graphical representation that illustrates the limits of what can be produced between two competing goods or activities given fixed resources and technology.

Efficient Point

Any point located directly along the Production Possibility Frontier where resources are fully utilized and an increase in one good requires sacrificing some of another.

Inefficient Point

A point situated strictly inside the Production Possibility Frontier representing wasted resources, where it is possible to obtain more of both goods without trade-offs.

Outward Shift of the PPF

An expansion of the production possibilities boundary resulting from factors such as technological innovation, automation, artificial intelligence, better education, or an increase in the labor force.

Inward Shift of the PPF

A contraction of production possibilities caused by technological regress, physical destruction of capital and labor (such as during war), or natural degradation over time.

Comparative Advantage

The ability of an individual or country to produce a good at a relatively lower opportunity cost compared to another producer, forming the basis for mutual gains from trade and specialization.

Absolute Advantage

The ability of an entity to produce more of a good or produce all goods outright better than another producer, regardless of relative opportunity costs.

Tariff

A tax placed on imported goods that artificially raises their price in the importing country, which can choke off mutually beneficial trade and specialization if set sufficiently high.

Equity

A normative judgment concerning the fairness of how resources or outputs are distributed at an efficient point on the Production Possibility Frontier, governed by societal or personal preferences.