Opportunity Cost and PPFs

The module discusses the concept of opportunity cost, which is central to economics. The three main agents in an economy are households, firms, and the government, each with their own objectives. Trade-offs arise due to the economic problem of finite resources and infinite wants. The production possibility frontier is a diagram that shows the maximum possible output of two goods or services that can be produced within a given time period. The curve represents the maximum output that can be produced with a given set of resources. Moving from one point on the curve to another requires giving up some output of one resource to produce more of another. The opportunity cost is the foregone alternative when a choice is made. The curve can be drawn as a straight line or a curve, depending on the resources’ specialization. Improvements in productivity can shift the production possibility frontier outwards or rotate it outwards.