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6 Monday, September 6, 2006

# 6 Monday, September 6, 2006 - • For Fred to be willing to...

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Wednesday, September 06, 2006 Microeconomics Fish/hr Corn/hr Fisherman Fred 3 oz/hr 5 oz/hr Farmer Tom 2 oz/hr 4 oz/hr Fish/day Corn/day Fisherman Fred 24 oz/day 40 oz/day Farmer Tom 16 oz/day 32 oz/day Opportunity cost of Fred Tom Each oz of fish 5/3 oz/corn 2 oz/corn Each oz of Corn 3/5 oz/corn ½ oz of fish FRED TOM Fish Fish oz/day oz/day 24 16 40 Corn oz/day 32 Corn oz/day 7 oz of corn = 4 oz of fish 1 oz of corn = 4/7 oz of fish Terms of Trading 1 oz of fish = 7/4 oz of corn

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Wednesday, September 06, 2006 FRED TOM Fish Fish oz/day oz/day 24 16 Exports 20 4 Imports 7/2 20/3 7 40 Corn oz/day 25 32 Corn oz/day Imports Exports y = m x + b y = m x + b 20 = (-3/5) x + 24 y = (-1/2)25 +16 -4 = (-3/5)x y = (25/2) + (32/2) X = 20/3 y = 7/2 These equations represent if he does not trade, if he trades the output is the higher dot Specialization and trade allow an individual to consume more than his PPF allows
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Unformatted text preview: • For Fred to be willing to trade, he must receive more than 5/3 oz of corn for each oz of fish • For Tom to be willing to trade, he must receive more than ½ oz of fish for each oz of corn • Each individual obtains a good at a price lower than there opportunity cost • Tom has obtain an oz of fish at a price lower than 2 oz of corn • Fred has to obtain an oz of corn at a price lower than 3/5 oz of fish Wednesday, September 06, 2006 FRED TOM 24(7/4) = 42 32(4/7) = 128/7 Fish Fish oz/day oz/day 18.25 25 16 CPF with trade CPF with trade 32 40 Corn oz/day 32 Corn oz/day * The terms of trade represents a different relative price, so the CPF shifts when trade occurs...
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6 Monday, September 6, 2006 - • For Fred to be willing to...

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