budget constraint and the production possibilities frontier for society, as a whole, are the same basic diagram.

Figure 2.6 shows an individual budget constraint and a production possibilities frontier for two goods, Good 1 and

Good 2. The tradeoff diagram always illustrates three basic themes: scarcity, tradeoffs, and economic efficiency.

The first theme is scarcity. It is not feasible to have unlimited amounts of both goods. Even if the budget constraint

or a PPF shifts, scarcity remains—just at a different level. The second theme is tradeoffs. As depicted in the budget

constraint or the production possibilities frontier, it is necessary to forgo some of one good to gain more of the other

good. The details of this tradeoff vary. In a budget constraint we determine, the tradeoff is determined by the

relative prices of the goods: that is, the relative price of two goods in the consumption choice budget constraint.
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