Economics deals with the choices that we face in spending our limited money income and savings. We use the production possibilities frontier to help us understand in an economic context the constraints caused by scarcity and the resulting choices. If you are taking microeconomics, choice will often be described in terms of the individual's or firm's decision. In macroeconomics, choice has a broader interpretation and looks at public policy questions such as a reduction in the federal budget deficit and cuts in popular federal programs. One thing to emphasize not only for this section, but also for the entire course, is the PPF represents a model of the economy.
Models are highly simplified representations of a theory about actual events.
Models are not designed to explain everything, but will be used in this course to help you understand the main points being presented. After reading about the PPF, you should have a fundamental understanding of the economic representation of scarcity and choice. Once we have covered this material, we can extend the discussion to other important economic issues such as international trade and economic development.