This node is subtitled : How to get something for nothing.

As has been noted in the production possibilities curve, in nice ASCII art, the ppc is the line that connects how much of product y and product x can be made with a certain amount of resources. For example, if I have a few tons of apples, I can make either a few tons of apple juice, a few tons of apple sauce or a ton of one and a ton of the other. In this example, all things being equal, the line is fairly linear, being perhaps in the form f(x)=y-x, a 45 degree downward line.

This example, which could only exist in a textbook, brings me to my point : The PPC is hardly, if ever, linear. In a microeconomic sense it is decidedly not so, because a producer has a factory that is specialized for one thing. If you have a factory for making, say Razor Scooters, and you have several tons of boxes of razor scooter parts, you can make several hundred of product x (the razor scooter, and , perhaps by having all your workers tinker all afternoon, you can make one rather unusual bicycle. OF course, with a small investment in capital, you could perhaps change your razor scooter plant into a bicycle plant. It would probably be very difficult, however, to turn it into an SST plant.

So on a microeconomic level, we see that production is specialized and therefore is not linear. However, there is another factor that comes into play, which is that often product y can be created with by products that are useless to the creation of product x. For example, a corn farmer who is growing corn for people to eat will also be creating a lot of corn stalks and secondary materials that can be used as fodder. In this case, f(x)=x, up until the point where the farmer runs out of land.

Of course, an open curve like that is rather rare, but in many situations, in both microeconomics and macroeconomics, The curve is rounded in the middle quite noticably. That is because, once again, production is specialized, and diverting resources into an area that doesn't require them results in a small gain in production. For example, say that you own a business that produces both routers and wallets. You are producing 90 units of each. You read in a magazine that there is going to be a big explosion in the demand for modems, so you send a notice over to your wallet factory, telling them to gear up to start producing more and more modems. After a month of this, you are no longer producing wallets, and the truly great efforts of your confused employees will have allowed you to produce a whole more 2 units of modems. Meanwhile, the hemp farmers who were selling you the canvas for your wallets are starving. So despite your dilligent efforts, you have not been able to produce much more, because resources, capital and employee abilities are specialized.

While this may seem to be a ridiculous example, on a macroeconomic level, there is several societies that have to live through just this kind of situation. For example, the nation of North Korea has been so focused on producing rather dubious forms of arms that they are letting people starve. By cutting back their production of grandiose public architecture and nuclear arms by about one percent, they could probably end their hunger problem. But the people in charge over there are a little unwound.

To take this scenario to a large first world economy, such as my own nation, the The United States, we currently have (and have had for a long long time) a debate about education and taxation. Now, using what I have established already, I will prove that it doesn't really matter, because the resources that we can devote to things like education and social services really can't be spent anywhere else.

If the government taxes everyone 10% more, it doesn't really cause any difference in the long run, because that means everyone will have 10% less money and prices will fall 10%. The only real problem with this could come if the government uses the taxes it has taken from people to compete against them in the marketplace, driving the prices of scarce resources up. For example, if the government used tax money to buy lots of automobiles, which are scarce, that would be a problem, because it would drive the supply down and the price up. However, if the government decides to but 5 million tons of beets and give them to the hungry, that doesn't really effect consumers much, since in my country, most forms of food have a surplus problem.

So take the example of education, if the government chooses to pay for several hundred thousand more teachers to be educated and sent to fancy schools, what exactly is the thing that must be given up to do this? On the graph of possiblities, raw people are the material, teachers are the x output, and managers or accountants and all the other things that highly educated people can be are the y output. However, this country also has a surplus of educated people, so there are enough BAs to be turned into teachers, accountants and managers to go around. The same could be said of many other careers, such as social worker, probation officer, careworker, etcetera. There is no real loss in y output by turning out more of these people. In the long run, I believe, these people will educate more people, so in another generation, there will be way more people available for both x and y career outputs.

Sadly, of course, things are not as simple as this: some aspecgts of education, such as the physical buildings, are scare resources. If the government decides to build a spacious, modern, wired high school, the cost of plumbers, construction workers and network engineers in your town is going to go way way up. That is because the PPC between the high school and a brand new apartment building actually is fairly close to f(x)=y-x.

To be fair, I have been making a left wing case so far. But the truth is, neither the air force or the educational system needs to be holding bake sales just yet. The resources that the military uses in this country...the resources to make nukes, tanks, submarines and Anthrax really can't go into making educated people, producing consumer goods, or growing food. In other words, if we define x,y and z as comsumer goods, social goods and military hardware, all of these things can produce at a certain level of output, and cutting down on one won't really produce more of the other.

Of course, economics isn't a science because we can't do double blind experiments on gigantic first world economies, but I still believe that our nation could produce a lot more of certain outputs, such as education and social programs, as well as feeding the hungry, without any noticable reduction in other areas. On the other hand, I do have to admit that some things, such as housing and health care are still rather limited in what we can do with them.