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.
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.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
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.
