Economists are fond of reminding us that every choice involves trade-offs. The PPF is an excellent tool for illustrating these trade-offs. Whether the PPF is curved or linear, points along a PPF represent efficient and complete utilization of resources. Any time a firm, individual, or society finds itself at an outcome that is on its PPF, and thus the result of complete and efficient resource utilization, trade-offs or opportunity costs must be faced. The slope of the PPF gives us the value of the opportunity cost faced at any point on the PPF.

   Points that lie beneath the PPF are the result of an inefficient use of resources. When a company, society, or individual finds itself in such a situation there are, in a sense, no trade-offs or opportunity costs to face. A society in a deep recession would be in just such a situation. While moving from such a position to one in which resources are more fully used might not be easy, and there are clearly differing views of how best to return to fuller employment of resources, there are no real trade-offs in that society does not need to give up anything it wishes to keep in order to move from a recession to a period of growth.23 In the same way, if you find yourself at an inefficient point beneath your PPF and then become more efficient in using your time, both your grades and the amount of time you have available for leisure activities will increase without anything having to be given up. A firm that is using productive resources inefficiently can improve efficiency allowing it to both increase output and reduce costs.

   Economists aren't ignoring or forgetting these situations when they state there are always trade-offs. When large inefficiencies exist there are strong incentives to reduce or eliminate them. When these efforts are successful, we are right back in the interesting position where every choice involves a trade-off.

23 While problems of non-renewable resources, and resources whose use produces environmental damage are real concerns, we are ignoring those for now in order to focus on the simple theory behind the PPF.

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