Rec 2

# Rec 2 - Then trade 40 MS and 30 H After USA has(20 40 and...

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ECON Rec #2 January 28, 2009 If resources aren’t equally productive, PPF is bowed out! Suppose the PPF of Canada & US for maple syrup and honey are given by: US y= -x + 50 Op cost of honey is 1 maple syrup and op cost of MS is 1 honey H MS 0 50 10 40 20 30 30 20 40 10 50 0 Canada y = -3/2 x + 60 H MS 0 60 10 45 20 30 30 15 40 0

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Unformatted text preview: Then trade 40 MS and 30 H After: USA has (20, 40) and Canada (30, 20) Now they are above the PPF USA used to have (10, 40) H/MS Canada used to have (30, 15) H/MS Gains from trade: US Canada Honey +10 Maple Syrup +5 There has to be a point of initial trade and what is being traded to figure out gains from trade Competitive market – no one buyer or seller can determine the price Law of demand – ceteris paribus, if price goes up, quantity demand decreases Ceteris paribus – everything being the same Demand refers to the ENTIRE line so if you are just moving on the line it is QD A change in demand – arises from a change from something other than price A change in QD – arises from a change in price...
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## This note was uploaded on 09/29/2009 for the course ECON 101 taught by Professor Balaban during the Spring '07 term at UNC.

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Rec 2 - Then trade 40 MS and 30 H After USA has(20 40 and...

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