EconH200L2

EconH200L2 - Two Examples of Economic Models The Circular...

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Two Examples of Economic Models The Circular Flow Diagram: A simple model of who participates on what markets. Examples of Inputs or Factors of Production are labor, land, capital, energy, and materials. The model assumes that firms do not buy goods or services, there is no government, no asset markets, . .. The inner loop is the flow of goods and services. The outer loop is the flow of dollars.
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A model that shows the combination of outputs (here, computers and cars) that the economy is capable of producing. Point C is not feasible. Point D is feasible but not efficient. A, B, E, and F efficient. There is a tradeoff. By comparing A and B, we see that the opportunity cost of 100 cars is 200 computers, or 2 computers per car. Similarly, the opportunity cost of a computer is .5 cars. The opportunity cost of a car is the slope of the PPF. * slope of PPF * = Comp/ ª Car * = 2. Opportunity cost depends on where you are: the
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This note was uploaded on 07/17/2008 for the course H 200 taught by Professor Fleisher during the Fall '08 term at Ohio State.

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EconH200L2 - Two Examples of Economic Models The Circular...

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