2010 post-2

2010 post-2 - I. Opportunity Costs, the PPF, and...

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I. Opportunity Costs, the PPF, and Comparative Advantage Example: Troniton produces both TVs and DVD players at 3 different plants. Suppose the inputs for TVs and DVD players are used in constant proportions within each factory so that there exist constant opportunity costs, but each factory was created with a different goal in mind. Each plant’s PPF is shown below: DVD 400 Plant 1 (newest plant); slope of PPF = -2 200 TV DVD Plant 2; slope of PPF = -1 200 200 TV
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DVD Plant 3 (oldest plant); slope = -1/2 100 200 TV Note that the slope of each PPF gives the opportunity cost of TVs. Comparative Advantage: the ability to produce a g/s at a lower opportunity cost than another producer.
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DVD 700 Slope = -1/2 600 Slope = -1 400 Slope = -2 0 200 400 TV .
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Economic Modeling: should include important variables, and abstract from the unimportant. The goal is to simplify and focus. Normative vs. positive economics & economic modeling: Positive Economics: analysis of what is, was, or will be. The question, “How will an increase in the wage for fast-food workers affect the number of workers hired?” is an example of a positive question. Alternatively, Normative Economics is the analysis of what ought to be. An example of a normative question would be, “Should the government increase the minimum wage?” Note that the questions are similar, but economists prefer to deal with the positive. Comparative Advantage in the Setting of “International Trade”
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This note was uploaded on 03/31/2008 for the course ECON 2010 taught by Professor Mertens,wi during the Spring '07 term at Colorado.

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2010 post-2 - I. Opportunity Costs, the PPF, and...

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