Principles of Macroeconomics / Unit 1 MAC 0025 worked example, 60 to 90 seconds
On, Inside or Outside the Frontier
The idea
Given a frontier and a point, answer three questions in order. Is the point attainable? Points on or inside the curve are; points outside are not, with the resources and technology in hand. Is it efficient? Only points on the curve are productively efficient; a point inside leaves resources idle or badly used, so more of both goods could be had. And what would move it? Ending the inefficiency moves a point from inside onto the curve, while growth moves the curve itself outward and makes formerly unattainable points attainable.
In practice
Worked example: a country can produce, at the extremes, six hundred ambulances and no schools, or nine hundred schools and no ambulances, with a bowed curve between. A plan for three hundred ambulances and four hundred schools lies inside: attainable, and inefficient, because both could rise. A plan for five hundred ambulances and eight hundred schools lies outside: not attainable now, though growth could bring it inside reach.
Where people slip
The common error is to treat unattainable as impossible forever. A point outside the frontier is out of reach with today's resources and technology, and growth can move the frontier past it. The second error is to call an inside point a choice about priorities. It is not a tradeoff at all: from inside, more of both goods is available without giving up either.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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