Question

Give an example of a “gun or butter” trade off your school or local government might have to make. Describe the issues on each side of the debate.

Answer 1

The gun versus butter model is one of the ten main principles of economics, specifically macroeconomics. It is an example of a production-possibility frontier. It is a simplified model of the spending as a part of GDP, and represents a way the decision makers decide between the production of defense (gun) or consumer goods (butter). A nation has to decide which balanced solution between these two choices is best for the needs of its economy.

For example, local government may have to decide between organizing a festival or repairing infrastructure in town. If they decide only to organize a festival, infrastructure will suffer which will cause additional problems for the population and trading and general traffic. On the other side, if the local government decides only to repair roads and improve infrastructure, that would mean that there would be no money left for festivals which will cause the general disapproval of the local government in the public opinion. Also, festival is a good way to increase funds in the budget and later on invest them further. The perfect balance would be somewhere in the middle of a production-possibility curve, where money would be made for investments, and increase in ratings in the public opinion, and on the other side there would have been an improvement in the infrastructure.