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Unformatted text preview: 12 8 4 1 2 3 4 5 CDs The opportunity cost of 1 gallon of gas = of a CD The opportunity cost of 1 CD is 4 gallons of gas *The opportunity cost of the xaxis, on a straight line PPF or CPF, is always equal to the absolute value of the slope. The yaxis is the reciprocal of the absolute value of the slope. Wednesday, August 30, 2006 In the case of a CPF the prices of the goods and the income endowment are assumed fixed. When these things change, the CPF will shift. Ex. 1 Suppose the income endowment increased to $70 Gasoline 28 (Gallons) 24 20 *CPF shifts out 16 *Opportunity costs do not change 12 8 Same Slope 4 1 2 3 4 5 6 7 CDs Ex. 2 Suppose the price of CDs increases to $15 income is remaining at $50 Gasoline (Gallons) 20 16 *CPF shifts inward 12 *Opportunity Costs of a CD is 6 gallons of gas *Opportunity Costs of a gallon of gas is 1/6 of a CD 8 4 1 2 3 4 5 CDs...
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This note was uploaded on 03/20/2008 for the course EC 201 taught by Professor Xasdf during the Fall '08 term at N.C. State.
 Fall '08
 xasdf
 Microeconomics

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