Present Choices and Future Possibilities

27 Apr

An economy’s current position on its production possibilities curve is a basic determinant of the future location of that curve. Let’s designate the two axes of the production possibilities curve as goods for the future and goods for the resentGoods for the future are such things as capital goods, research and edu­cation, and preventive medicine. They increase the quantity and quality of property resources, enlarge the stock of technological information, and improve the quality of human resources. Goods for the future, like industrial robots, are the ingredients of economic growth. Goods for the present are pure con­sumer goods, such as pizza, clothing, and soft drinks.

Now suppose there are two economies, Alfa and Beta, which are initially identi­cal in every respect except one: Alfa’s current choice of positions on its production possibilities curve strongly favors present goods over future goods. Point A indicates that choice. It is located quite far down the curve to the right, indicating a high priority for goods for the present, at the expense of fewer goods for the future. Beta, in contrast, makes a current choice that stresses larger amounts of future goods and smaller amounts of present goods, as shown by point B.

Other things equal, we can expect the future production possibilities curve of Beta to be farther to the right than Alfa’s curve. By currently choosing an output more favorable to technological advances and to increases in the quantity and quality of resources, Beta will achieve greater economic growth than Alfa. In terms of capital goods, Beta is choosing to make larger current additions to its “national factory”—to invest more of its current output—than Alfa. The payoff from this choice for Beta is more rapid growth—greater future production capacity. The opportunity cost is fewer consumer goods in the present for Beta to enjoy.

Is Beta’s choice thus “better” than Alfa’s? That, we cannot say. The different out­comes simply reflect different preferences and priorities in the two countries.


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