Production Possibilities Curve (PPC)
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A graphical representation showing the maximum combinations of goods or services that can be produced with available resources and technology.
Opportunity Cost:
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​The value of the next best alternative that is forgone when making a choice, illustrated by the slope of the PPC.
Scarcity
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The fundamental economic problem where resources are limited while human wants are unlimited, depicted by the PPC boundary.
Choice
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The decision-making process in selecting which goods and services to produce within the limits of the PPC.
Unemployment
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When resources, especially labor, are not fully utilized, shown as a point inside the PPC.
Efficiency
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Maximizing output from available resources, represented by any point on the PPC curve.
Actual Growth
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An increase in output shown by a movement from a point inside the PPC to a point on the curve, indicating better utilization of resources.
Growth in Production Possibilities
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An outward shift of the PPC, indicating an increase in an economy's capacity to produce goods and services due to factors like improved technology or increased resources.
Increasing Opportunity Cost
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As more of one good is produced, the opportunity cost increases,
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shown by the bowed-out shape of the PPC.
Constant Opportunity Cost
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A straight-line PPC indicating that the opportunity cost of producing one good in terms of another remains constant.
Circular flow of income model
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A model illustrating the flow of goods and services, resources, and money in an economy between households and firms.
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It shows how economic activity is interrelated.
Households and Firms
Households
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​Consumers who provide factors of production (land, labor, capital, and entrepreneurship) to firms and receive income (wages, rent, interest, and profits) in return.
Firms
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Businesses that produce goods and services, which they sell to households and other firms.
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They pay households for the use of factors of production.