Production–possibility frontier

A curve showing the maximum combinations of goods or services an economy can produce with its available resources and technology. Points on the frontier are productively efficient; points inside are attainable but inefficient.

Opportunity cost: The value of the best alternative forgone when a choice is made. Moving along the frontier trades some output of one good for more of another.
Scarcity: The condition in which resources are limited relative to wants. Scarcity is why an economy cannot produce unlimited quantities of every good.
Comparative advantage: The ability to produce a good at a lower opportunity cost than another producer. Different frontiers reveal the opportunity costs underlying specialization and trade.
Production possibility set: The set of all output combinations an economy can produce with its resources and technology. The frontier is the boundary of this feasible set, not the entire set.
Productive efficiency: A condition in which no more of one output can be produced without reducing another, given available inputs. Every point on the frontier represents productive efficiency.
Factors of production: The resources used to produce goods and services, commonly classified as land, labor, capital, and entrepreneurship. Their availability constrains the economy’s production possibilities.
International trade: The exchange of goods and services across national borders. Trade can let an economy consume beyond its own production frontier.
Indifference curve: A curve connecting consumption bundles that give a consumer the same level of satisfaction. Indifference curves represent preferences, while the frontier represents production limits.
Allocative efficiency: A condition in which the mix of goods produced best matches social preferences. The frontier shows feasible efficient mixes, but not which mix society values most.
Technology: The knowledge and methods used to transform inputs into goods and services. Available production methods determine how much output resources can generate.

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