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| Production Possibilities Model |
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Definition
| A model that shows the goods and services that an economy is capable of producing—its possibilities—given the factors of production and the technology it has available. |
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| The set of rules that define how an economy’s resources are to be owned and how decisions about their use are to be made. |
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| The resources available to it for the production of goods and services. |
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| The value, or satisfaction, that people derive from the goods and services they consume and the activities they pursue. |
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| The human effort that can be applied to the production of goods and services. |
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| A factor of production that has been produced for use in the production of other goods and services. |
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| The skills a worker has as a result of education, training, or experience that can be used in production. |
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| Includes money and other “paper” assets (such as stocks and bonds) that represent claims on future payments. |
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| The knowledge that can be applied to the production of goods and services. |
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| A person who, operating within the context of a market economy, seeks to earn profits by finding new ways to organize factors of production. |
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| Production Possibilities Curve |
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Definition
| A graphical representation of the alternative combinations of goods and services an economy can produce. |
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| In producing a good or service, the situation that occurs if the opportunity cost of producing that good or service is lower for that economy than any other. |
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| Law of Increasing Opportunity Cost |
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Definition
| As an economy moves along its production possibilities curve in the direction of producing more of a particular good, the opportunity cost of additional units of that good will increase. |
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Definition
| Situation in which all the factors of production that are available for use under current market conditions are being utilized. |
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| When an economy is operating on its production possibilities curve. |
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| Situation in which the economy is using the same quantities of factors of production but is operating inside its production possibilities curve. |
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| Situation in which an economy is producing the goods and services in which it has a comparative advantage. |
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| Market Capitalist Economy |
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Definition
| Economy in which resources are generally owned by private individuals who have the power to make decisions about their use. |
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| Command Socialist Economy |
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Definition
| Economy in which government is the primary owner of capital and natural resources and has broad power to allocate the use of factors of production. |
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| Economies that combine elements of market capitalist and of command socialist economic systems. |
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