Opportunity Cost

Shifting of PPF

-PPF shifts to the right as an economy grows as a result of -expanding resources, improving technology

Assumptions of PPF

1. Fixed resources 2. Fixed technology 3. Two goods being produced

Production Efficiency

A situation in which the economy is getting all that it can from its resources and cannot produce more of one good or service without producing less of something else.

Scarcity

A situation in which unlimited wants exceed the limited resources available to fulfill those wants

Opportunity Cost

Activity or unit of commodity that we have given up to have an extra activity or unit of commodity we have chosen to have.

Law of increasing opportunity cost

As more of a particular product is produced, the opportunity cost, in terms of what must be given up of other goods to produce each unit of the product, increases. Explains the convex shape of a nation's production possibilities curve.

Choice

Decision made or course of action taken when faced with a set of alternatives.

Shape of PPF Graph

If opportunity cost is constant than the graph is a straight line and if the opportunity cost is increasing than the graph would be curve bow outward

Points on a PPF graph

Points lie below, above, and on the PPF line

Production Possibilities Frontier (PPF)

The curve representing possibilities of producing different quantities of two goods with given resources and technology

Economic growth

an increase in the amount of goods and services produced per head of the population over a period of time