You can't arbitrarily include demand for either axis in the graph by plotting them as if there is truly a production trade-off between gasoline and automobiles.
Why not? If there is no demand for a product, it will not be produced. If there is no supply of gasoline, then clearly there will be no demand for automobiles.
No law of physics prevents their production, of course, so in that sense it's not a tradeoff. But no law of physics prevents you from showing up naked at work. Nevertheless, we can say with some confidence that it will not happen in any economically interesting magnitude.
all other commodities (including automobiles), represented by a $US or a Euro symbol
Money does not represent goods or services. It represents promises.
there is [currently] no reason to believe that Keynesian stimulus, even of something as perverse as subsidizing gas guzzling autos, would result in anything other than providing much needed employment during an economic crisis.
But now you are confusing objective and strategy. Employment is not an objective. Income isn't even an objective. An adequate supply, to all members of society, of the goods and services that make life safe, comfortable and enjoyable - that is an objective.
The rest are means to that end.
The advantage of securing an adequate supply of goods and services by way of ensuring full employment is that this expands production, allowing one to supply the goods and services more easily (and/or to expand the capital plant, allowing one to supply the goods and services more easily in the future). But if all necessary goods and services can already be provided without full employment, then there is no reason to engage in make-work just to reach a certain employment figure. Straightforward redistribution would suffice, and has the advantage of not wasting people's time with unproductive toil.
By way of example, hiring people to build a railway is more desirable than simply paying them unemployment insurance, if and only if the railway actually makes sense. If the railway in question is unnecessary, all you accomplish (over and above what can be accomplished by simply printing money and handing it to the unemployed) is wasting people's time, and whatever steel, cement and copper wire you need to make the railway.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Why not? If there is no demand for a product, it will not be produced. If there is no supply of gasoline, then clearly there will be no demand for automobiles. No law of physics prevents their production, of course, so in that sense it's not a tradeoff. But no law of physics prevents you from showing up naked at work. Nevertheless, we can say with some confidence that it will not happen in any economically interesting magnitude.
The issue is the use of mental tools for organizing thinking. The pedagogical purpose of the PPF is distinguish thinking about physical limitations on production as distinct demand limitations in order to be able to identify supply limitations and demand limitations, so it just confuses people to add a demand limitation back into the PPF. There's no reason to even make a graph with a PPF if it's not a picture about tradeoffs in solely production possibilities. Demand gets brought into the PPF picture with an additional constraint drawn in some way on the graph. Then you've organized your thoughts about two distinct pieces of a complete argument: limitations due to physical tradeoffs, and limitations due to the quantity demanded for things being different at different prices faced by consumers in terms of the physical elements making up a produced good.
Then you've organized your thoughts about two distinct pieces of a complete argument: limitations due to physical tradeoffs, and limitations due to the quantity demanded for things being different at different prices faced by consumers in terms of the physical elements making up a produced good.
I don't understand why that's a bad thing. From the point of view of what is actually produced, all these constraints matter. Attempting to put them all into a model and then examine the remaining degrees of freedom strikes me as a worthwhile exercise.
Perhaps "production possibility frontier" is a misnomer, though.
If one sector runs into a hard upper limit to production, leading to scarcity-induced price inflation in that commodity, demand for all complementary commodities will decline. This has dramatic consequences, in that a fairly small number of resource constraints can seriously hamper a modern, highly interconnected economy. And this is not obvious from a purely supply-side picture.
