Production Possibilities Curve and Opportunity Cost

A production point that is unattainable given a limited supply of resources and the current technology.

The maximum amount of one good that can be produced with a given amount of resources, given that the production of other goods is held constant.

As a country focuses more resources on producing one good, the opportunity cost of producing additional units of that good increases.

A shift rightward in the production possibilities curve, indicating economic growth and increased potential to produce more.

The relationship between the price of a good and the quantity demanded of it.

Factors that shift the demand curve.

The relationship between the price of a good and the quantity supplied of it.

Factors that shift the supply curve.

When AD shifts right, the economy experiences economic growth: the aggregate output increases, unemployment falls, and inflation rises.

When AD shifts left, the economy experiences a downturn: the aggregate output decreases, unemployment increases, and inflation falls.

Expansionary Fiscal Policy aims to stimulate the economy during recessions by increasing government spending or cutting taxes. This increases aggregate demand and can help push the economy out of recession.

Contractionary Fiscal Policy aims to slow down an overheated economy by decreasing government spending or increasing taxes to reduce aggregate demand and combat inflation.

Expansionary Monetary Policy aims to stimulate economic activity by decreasing interest rates, making it cheaper for businesses and individuals to borrow money, which boosts investment and spending.

Contractionary Monetary Policy aims to slow down an overheated economy by increasing interest rates, making it more expensive to borrow money, which discourages investment and reduces spending.

Real GDP refers to the total value of goods and services produced in a country adjusted for inflation.

Inflation is a general increase in the prices of goods and services in an economy over a period of time. It reduces the purchasing power of money.

A good or service is considered rivalrous if one person's consumption of the good prevents another person from using the good or service.

A good or service that is non-rivalrous is one where the consumption of the good by one person does not prevent others from also consuming the good.

A good or service is considered excludable if it is possible to prevent people from consuming the good if they do not pay for it.

A good or service is considered non-excludable if it is not possible to prevent people from consuming the good even if they do not pay for it.

A good or service is considered to be a public good if it is both non-rivalrous and non-excludable. Public goods are often provided by governments because it is not profitable for private firms to produce them.

A good or service is considered to be a common good if it is rivalrous but non-excludable. Common goods are not necessarily provided by governments, but are often overused resulting in resource depletion.

A natural monopoly is a good or service where it is most efficient to have a single provider. Natural monopolies often result in government regulation to ensure that the provider does not abuse its market power.

A good or service is considered to be a private good if it is both rivalrous and excludable. Private goods are typically produced by private firms and sold in markets.