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Econ11Fall2007NotesForLecture_4Sept17

# Econ11Fall2007NotesForLecture_4Sept17 - Lecture IV Notes...

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Lecture IV Notes For Sept 17, 2007; Problems Due Wednesday I. Things that You Should Know About the PPF II. Today’s Learning Objective: The Marshallian Cross – S & D III. Short Run Supply Curves (Firm & Market), Slope & Shifters IV. Individual and Market Demand Curves V. Supply & Demand Interaction in Markets VI. Useful Insights from the Marshalian Cross Diagram I. Things that You Should Know About the PPF A. The PPF shows the tradeoff in production between goods 1. The slope of the PPF is the opportunity cost of the good on the horizontal in terms of the good on the vertical axis. ` B. To form a PPF, you need a production function for two goods, say X = aL X and Y = bL Y , and a limit on the amount of inputs available, L =L X +L Y . Then substitute X/a for L X and Y/b for L Y , so that , L =L X +L Y becomes L = X/a + Y/b, and solve for Y to get the equation of the PPF as Y = bL – (b/a)X – this is a linear PPF C. PPF’s divide product space of goods X and Y into three regions – (1) Below the PPF points are not technically efficient; (2) above the PPF points are infeasible; (3) on the PPF points are technically efficient. D. Most PPF’s are non-linear – concave from below. Opportunity cost of the good on the vertical axis increases as you try to produce more of it relative to the other good.

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