Chapter 2: Confronting Scarcity: Choices in Production

Start Up: An Attempt to Produce Safer Air Travel

In the wake of the terrorist attacks on the United States on September 11, 2001, American taxpayers continue to give up a great deal of money, and airline passengers continue to give much of their time—and a great deal of their privacy—in an effort to ensure that other terrorists will not turn their flights into tragedies.

The U.S. effort is run by the Transportation Security Administration (TSA), a federal agency created in response to the 2001 attacks. TSA requirements became a bit more onerous after Richard Reid, an Englishman and member of al-Qaeda, tried in December of that same year to blow up an American Airlines flight with a bomb he had concealed in his shoe. Reid was unsuccessful, but passengers must now remove their shoes so TSA agents can check them for bombs.

TSA restrictions became dramatically more stringent after Umar Farouk Abdulmutallab, a jihadist from Nigeria, tried—again without success—to blow up a plane flying from Amsterdam to Detroit on Christmas Day, 2009, using a bomb concealed in his underwear. The subsequent tightening of TSA regulations, and the introduction of body-scan machines and “patdown inspections,” were quick to follow. Each new procedure took additional money and time and further reduced passenger privacy. It was a production choice that has created many irate passengers but has also been successful, to date, in preventing subsequent terrorist attacks.

While the TSA procedures represent an unusual production choice, it is still a production choice—one that is being made all over the world as countries grapple with the danger of terrorist attacks. In this chapter we introduce our first model, the production possibilities model, to examine the nature of choices to produce more of some goods and less of others. As its name suggests, the production possibilities model shows the goods and services that an economy is capable of producing—its possibilities—given the factors of production and the technology it has available. The model specifies what it means to use resources fully and efficiently and suggests some important implications for international trade. We can also use the model to illustrate economic growth, a process that expands the set of production possibilities available to an economy.

We then turn to an examination of the type of economic system in which choices are made. An economic system is the set of rules that define how an economy’s resources are to be owned and how decisions about their use are to be made. We will see that economic systems differ—primarily in the degree of government involvement—in terms of how they answer the fundamental economic questions. Many of the world’s economic systems, including the systems that prevail in North America, Europe, much of Asia, and parts of Central and South America, rely on individuals operating in a market economy to make those choices. Other economic systems rely principally on government to make these choices. Different economic systems result in different choices and thus different outcomes; that market economies generally outperform the others when it comes to providing more of the things that people want helps to explain the dramatic shift from government-dominated toward market-dominated economic systems that occurred throughout the world in the last two decades of the 20th century. The chapter concludes with an examination of the role of government in an economy that relies chiefly on markets to allocate goods and services.