production possibility frontier

Allocative efficiency: Allocating available resources to produce the kinds of goods and services that consumers want the most.

Diminishing marginal returns: Increasing one input, while holding all other inputs constant, will eventually result in smaller and smaller additions to output.

Economic efficiency: Using all of our resources in a technically and allocatively efficient manner.

Economic model: An abstract description of a part of an economy. Simplifying assumptions are made, with a goal of understanding and explaining economic events.

Opportunity cost: The value of the best-forgone alternative. The true cost of making a choice is the value of what is given up as a result of that choice.

Marginal cost: The increase in costs resulting from an action or from producing one more unit of output.

Principle of increasing marginal costs: As the production of a good increases, the opportunity cost of producing one more unit of output eventually increases.

Production possibilities frontier: An economic model showing possible combinations of outputs, given resources and technology.

Technical efficiency: Using methods to produce goods and services that minimize costs of producing or maximize output given available inputs (resources).