Given our assumptions, we see that society must choose among alternatives. Fixed resources mean limited outputs of pizza and robots. And since all available resources are fully employed, to increase the production of robots we must shift resources away from the production of pizzas. The reverse is also true: To increase the production of pizzas, we must shift resources away from the production of robots. There is no such thing as a free pizza. This, recall, is the essence of the economic problem.
A production possibilities table lists the different combinations of two products that can be produced with a specific set of resources (and with full employment and productive efficiency). Table 2-1 is such a table for a pizza-robot economy; the data are, of course, hypothetical. At alternative A, this economy would be devoting all its available resources to the production of robots (capital goods); at alternative E, all resources would go to pizza production (consumer goods). Those alternatives are unrealistic extremes; an economy typically produces both capital goods and consumer goods, as in B,C, and D. As we move from alternative A to E, we increase the production of pizza at the expense of robot production.
Because consumer goods satisfy our wants directly, any movement toward E looks tempting. In producing more pizzas, society increases the current satisfaction of its wants. But there is a cost: more pizzas mean fewer robots. This shift of resources to consumer goods catches up with society over time as the stock of capital goods dwindles, with the result that some potential for greater future production is lost. By moving toward alternative E, society chooses "more now" at the expense of "much more later."
By moving toward A, society chooses to forgo current consumption, thereby freeing up resources that can be used to increase the pro-
Was this article helpful?