overall budget available. The graph with two goods that we presented here clearly illustrates that every choice

has an opportunity cost, which is the point that does carry over to the real world.

2.2 The Production Possibilities Frontier and Social Choices

LEARNING OBJECTIVES

By the end of this section, you will be able to:

•

Interpret production possibilities frontier graphs

• Contrast a budget constraint and a production possibilities frontier

• Explain the relationship between a production possibilities frontier and the law of diminishing returns

• Contrast productive efficiency and allocative efficiency

• Define comparative advantage
34 2 • Choice in a World of Scarcity

Just as individuals cannot have everything they want and must instead make choices, society as a whole

cannot have everything it might want, either. This section of the chapter will explain the constraints society
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