A Model Illustrating Scarcity, part I

Let's have an example of a model in economics. At the same time, it will be a model that illustrates what economists mean by scarcity. The model we shall use for our example is the Production Possibility Frontier model. To repeat, scarcity and choice go hand in hand. This has far-reaching implications. Productive resources are always scarce, since we cannot increase the output of one kind of product without decreasing that of another

. Of course, our economy produces many kinds of goods and services, so that we may be able to understand that better if we think in terms of a model. For our model, let us think of an economy that produces just two kinds of goods: "machines" and food.

At any given time, a country cannot produce more machines without producing less of something else. (In this case, the country produces less food). Table 1 below shows, for the model country, how much food they can produce given each respective output of machines. For example, to increase machine output from 7000 to 8000, they would have to cut food output from 1020 to 720.

Table 1

machines	food
0	2000
1000	1980
2000	1920
3000	1820
4000	1680
5000	1500
6000	1280
7000	1020
8000	720
9000	380
10000	0

This relationship is called the "production possibility frontier."

Let's be sure you understand how to read the table. It tells us, for example, that when the economy produces 3000 machines, it can produce 1820 units of food. To increase machine production to 4000, it would be necessary to reallocate resources from the production of food to the production of machines. This will reduce the production of food; the table tells us that it would reduce the production of food to 1680.

A Diagram to Illustrate this Model