Resource constraints and economic exchange

The production possibilities curve (production frontier) is a curve that shows the maximum amount of one good that can be produced for a given amount of production of another good.

Marginal analysis is the process of exploring the implications of making one or more very small changes

The opportunity cost of good or action is the best alternative that is given up in order to produce the good or follow the course of action.

A producer has a comparative advantage  in producing a good if the producer could expand production of the good at a lower opportunity cost (in terms of reduced production of oyher goods) than could other producers. When production is allocated efficiently across all producers, so that they all have the same opportunity cost of expanding production of a good, then we say that comparative advantage rests with those who produce more of the good thn they use and who sell the excess of their production over usage.

Voluntary economic exchange occurs when none of the parties to the exchange is physically compelled to enter into it.

Division of labor is a production process that is divided into many individual tasks.

Specialzation of labor is productive tasks being performed by individuals who concentrate on just those particular tasks.

By misallocation of resources economists mean the use of productive resources in such a way that the economy has less total output than it is capable of producing and less total consumption than it is capable of enjoying.

Market failure is a situation in which the ordinary functioning of the free market yields inefficient and/or harmful results – results such that a different pattern of production and/or consumption could make at least one person better off without making anyone else worse off.

A recession – or a depression,  which is a big recession – is a condition in which the economy develops widespread unemployment.