Econ 201 1st Edition Lecture 4Outline of Last Lecture 1. Ten principles Economic Overview2. ten principles Economic (1~4)3. Examples of Opportunity cost4. Ten Principles Econonmics(5~10)5. Concept of EfficencyOutline of Current Lecture 6.Production Possibilities FrontierCurrent LecturePPF - General Characteristics - Product combination: any combination of outputs (X, Y).- Production Possibility Set: all feasible combinations. è Boundary of Set is the PPF.- Defined by productive resources and technology of a social unit: country, community, firm. - Shows the production tradeoff between two goods/services. - Applies to one actor or an entire country - any defined production unit. - Points inside frontier are inefficient. ex. A- Points outside are not attainable. ex. C (Except possibly through trade.) - Productive Efficiency vs. Allocative Efficiency PPF Lessons - Growth & Decline: Changes in 1) resource endowment; 2) technology - specific & general. -- Cost: whole vs. marginal: C(XB) = Ymax - YB MOC(XB) = ∆Y/∆X at point B.- MOC is shown by slope of the PPF. (Or by inverse of slope for MOC(YB).)- Law of increasing marginal costs These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Because resources are not homogeneous – different units of the resource (pieces of land, or particular workers) may have different relative productivities in X and Y. PPF with Trade- Relative price indicates market tradeoff between X and Y vs. PPF tradeoff- Relative price is seen as | slope | of a Trade Line – the Terms of Trade (ToT).- Trade provides potential for moving beyond the PPF for consumption: è Gains from trade.But possibilities are still bounded by the CPF. i.e. trade line at optimal product point. - Example: Y is oil @ $100/barrel; X is sugar @ $4/kg.Then: 1 kg. sugar trades for 1/25 barrel of oil. Or: 1 barrel of oil trades for 25 kg. sugar. Relative Price: ToT = Px/Py = 4/100 = .04 Or: ToT’ = Py/Px = 100/4 =
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