refers to the maximum production potential of an economy with a given level of resources

cost of alternative use of resources

occurs when the economy utilises all its resources efficiently

outlines the production possibility or possible production combinations for a hypothetical economy

1. only TWO goods can be produce with finite resources 2. all resources are fully employed 3. level of technology constantly fixed 4. resources are perfectly transferable

it makes situations easier to analyse and develop economic theories by using logical reasoning

1. more than 2 goods 2. partially employed; resources constantly change 3. technology constantly improving 4. not always transferrable

If point is outside PPF, technology is improve, if points within, not all resources are used efficiently

state of economy where production represents consumer preferences

the constraint a consumer, firm of government faces when making decision for the present and future

consumption of a certain good in both present and future

the money that is not spent on the first consumption can be saved in the second consumption

a measure of usefulness and pleasure received by a consumer from the consumption of a product

have limited income so they make choices regarding maximising their utility

must choose between which goods and services to produce and sell and how profit is spent