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PPF - Increasing Marginal Opportunity Costs and Allocative Efficiency definitions

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  • Production Possibility Frontier
    A curve showing all combinations of two goods that can be produced using available resources efficiently.
  • Marginal Opportunity Cost
    The amount of one good that must be given up to produce an additional unit of another good.
  • Allocative Efficiency
    A point where consumer preferences are met, as marginal benefit equals marginal cost for the mix of goods.
  • Productive Efficiency
    A situation where resources are used so that it’s impossible to produce more of one good without reducing another.
  • Marginal Cost
    The increase in sacrifice of one good for each additional unit of another, rising as more is produced.
  • Marginal Benefit
    The value consumers place on an additional unit of a good, which decreases as more units are obtained.
  • Arc Method
    A technique for calculating the average slope between two points on a curve, used for non-linear graphs.
  • Bowed-Out Curve
    A graphical shape representing increasing marginal opportunity costs, not a straight line between endpoints.
  • Consumer Preferences
    The subjective values and desires that determine the optimal mix of goods for allocative efficiency.
  • Efficient Quantity
    The specific amount of goods produced where marginal benefit and marginal cost intersect.
  • Willingness to Pay
    The maximum value consumers assign to a good, highest for initial units and lower for subsequent ones.
  • Slope
    A measure of the rate at which one good must be sacrificed to produce more of another, varying on a curved PPF.
  • Midpoint
    The average value between two production levels, used for plotting marginal cost and benefit on a curve.
  • Intersection
    The point on a graph where two curves, such as marginal cost and marginal benefit, meet to indicate efficiency.
  • Resource Allocation
    The distribution of inputs between goods to achieve either productive or allocative efficiency.