Guns vs. butter

Published March 24, 2023 9:49am ET




“Guns vs. butter” has been a perennial feature of standard macroeconomics textbooks for decades. The phrase purports to illustrate the concept of “opportunity cost,” which economists define as the highest-valued alternative foregone by choosing one course of action over another. It is a simple way of showing that given a finite stock of resources represented by a “production possibilities curve,” one must make trade-offs. By consuming more of one good, a decision-maker can consume less of another. The highest-valued good that is given up is the opportunity cost.

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