A Primer on Macroeconomics

Using the Production Possibility Frontier Diagram

We have now developed an understanding of the general meaning of the PPF and the assumptions behind it. But how can it be used? The analysis can be used in several ways, for instance, when thinking about the consequences of choice, different concepts of efficiency, the distinction between microeconomics and macroeconomics, and the basis for trade.

The PPF illustrates choice. Along the frontier, where we have full employment of resources, if we choose to produce more guns, the consequence is that we must settle for less butter. The slope of the frontier shows the rate of trade-off and reminds us that “there’s no such thing as a free lunch.”

Comment: Note, though, that if we have unemployed resources, ...