The_Heckscher-Ohlin_Model__Lesson_17_

The_Heckscher-Ohlin_Model__Lesson_17_ - Increasing...

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1 Lesson 17 1 Increasing Opportunity Costs Two extreme assumptions about opportunity cost: Opportunity cost is finite and constant (Ricardian model) Implies there is only one unique price at which economy will be diversified (produce both goods) Lesson 17 2 Opportunity cost is infinite (special case of specific-factors a.k.a. Ricardo-Viner model) Implies the economy produces a given (unchanging) amount of each good regardless relative price Is there anything in between? Lesson 17 3 What if the opportunity cost for producing a particular good increased as more of that good was produced? What would the PPF look like? How would we figure out how much of each good an economy would produce?
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2 Lesson 17 4 The PPF is strictly concave toward the origin X Q Y Q Lesson 17 5 That is, it gets steeper as we move from left to right along the frontier X Q Y Q Lesson 17 6 The slope gets more and more negative in the move from left to right X Q Y Q
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3 Lesson 17 7 To calculate the slope at a single point along the curve, draw a straight line tangent to that point X Q Y Q Lesson 17 8 Consider the slope at point a X Q Y Q a Lesson 17 9 Draw a line that just touches the curve at point a X Q Y Q a
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4 Lesson 17 10
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This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

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The_Heckscher-Ohlin_Model__Lesson_17_ - Increasing...

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