Discussion 2: Guns and Butter v

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Consider the curve below. One of the most common uses of the production possibilities concept in applied economics is the “guns and butter” metaphor. “Guns”

represents all production by the nation that is related to the national defense. “Butter” represents all other production by the nation (consumer goods, capital goods

for business, etc.). The power of the concept here is to show that defense spending doesn’t cost money. Rather it costs the value we place on the “butter” we

could’ve produced instead.

Let’s discuss this. When we invaded Iraq in 2003, we required the production of more guns (meaning less butter), but for several years the typical family felt no

loss of butter whatsoever. If anything, they were able to buy more butter than ever. How can this be when the PPF clearly shows that to produce more guns you

must produce less butter? Is there a way so that “things” can be manipulated so that families don’t feel a loss of butter when we engage in war with another


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