AP®︎ Macroeconomics: Topic 1.2 Flashcards

Master key terms and definitions for Topic 1.2 of AP Macroeconomics – Opportunity Cost and the Production Possibilities Curve (PPC) to help you prep for quizzes and the AP exam.

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Term

Production Possibilities Curve (PPC)

Definition

A graph showing maximum output combinations of two goods using fixed resources and technology.

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Production Possibilities Curve (PPC)
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A graph showing maximum output combinations of two goods using fixed resources and technology.

MOD-1.BMOD-1.B.1
PPC Assumptions
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Two goods are produced, resources are fixed, and technology is fixed.

MOD-1.B
Scarcity
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Limited resources force choices among competing uses and prevent producing unlimited amounts.

MOD-1.BMOD-1.B.2
Tradeoffs
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Getting more of one good requires producing less of another good.

MOD-1.BMOD-1.B.1
Opportunity Cost
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The value of the next best alternative given up when a choice is made.

MOD-1.BMOD-1.B.2
Per-Unit Opportunity Cost
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What is given up divided by the amount gained of the other good.

MOD-1.B
Productive Efficiency
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Using all available resources to produce the maximum possible output.

MOD-1.BMOD-1.B.2
Allocative Efficiency
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Producing the combination of goods most preferred by society.

MOD-1.B
Inefficiency / Underutilized Resources
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Output inside the curve, showing some resources are idle or misallocated.

MOD-1.BMOD-1.B.2
Unattainable Output
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A point outside the curve that cannot be produced with current resources and technology.

MOD-1.B
Capital Goods and Future Growth
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Producing more tools and machinery now can increase future productive capacity.

MOD-1.BMOD-1.B.5
Types of Opportunity Cost on a PPC
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Constant cost makes a straight line; increasing cost bows outward; decreasing cost bows inward.

MOD-1.BMOD-1.B.3
PPC Shifts
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Changes in resources or technology shift the curve outward for growth or inward for contraction.

MOD-1.BMOD-1.B.4
Full Employment
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A situation where all available resources are fully used, shown by points on the curve.

MOD-1.B