Econ 101 Winter 2010 Lecture 4

# Econ 101 Winter 2010 Lecture 4 - Economics 101...

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Click to edit Master subtitle style Lecture 1 Economics 101 Microeconomics University of Michigan Winter 2010 Lecture 4

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Lecture 1 22 Announcements n Reading Guide available on CTools n Today’s reading n Chapter 3, pp. 74 – 78 n Chapter 4, pp. 101-102 n Quiz in this week’s discussion section n Based closely on this week’s problem set n Take place at the beginning of class n Quiz must be taken in the section for which you are enrolled n Points will be assigned for n clear exposition of graphs and models
Lecture 1 33 Australia Fine wool (bales) Coarse wool (bales) 2 m 1 m Opportunity cost of 1 bale of fine wool is ½ a bale of coarse wool Opportunity cost of 1 bale of coarse wool is 2 bales of fine wool Slope = rise/run = -1/2

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Lecture 1 44 New Zealand Fine wool (bales) Coarse wool (bales) 0.5 m 0.75 m Opportunity cost of 1 bale of fine wool is 3/2 bales of coarse wool Opportunity cost of 1 bale of coarse wool is 2/3 of a bale of fine wool Slope = rise/run = -3/2
Lecture 1 55 Joint PPF: efficient allocation of Fine wool (bales) Coarse wool (bales) 2 m 1.75 m Australian opportunity cost of 1 bale of fine wool is ½ a bale of coarse wool NZ opportunity cost of 1 bale of fine wool is 3/2 bales of coarse wool Slope = rise/run = -1/2 0.75 m 2.5 m Slope = rise/run = -3/2

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Lecture 1 66 Prices: Pf = \$500/bale Pc = \$500/bale Australian producers will want to produce fine wool n Sell one bale of fine wool for \$500, or n Sell ½ a bale of coarse wool for \$250 NZ producers will want to produce coarse wool n Sell one bale of fine wool for \$500, or Allocating productive resources
Lecture 1 77 Allocating productive resources Prices: Pf = \$50/bale Pc = \$50/bale Australian producers will want to produce fine wool n Sell one bale of fine wool for \$50, or n Sell ½ a bale of coarse wool for \$25 NZ producers will want to produce coarse wool n Sell one bale of fine wool for \$50, or

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Lecture 1 88 Nominal and Relative Prices Nominal price: That thing we usually think of when we talk about price n Example: Pf = \$600/bale Pc = \$300/bale Relative price: the exchange rate between two goods n Example: Pf/Pc = \$600/\$300 = 2 n i.e. Fine wool is twice as expensive as coarse n i.e. one bale of fine wool has an equal market value to two bales of coarse wool n Pf/Pc expresses the value of one bale of fine wool, measured in bales of coarse wool
Lecture 1 99 Production decisions Compare: n the relative price of a good vs. n the opportunity cost of producing it Relative price of fine wool Opportunity cost of producing fine wool Value a bale of fine wool produced (measured in bales of coarse wool ) Quantity of coarse wool output forgone Produce Coarse Wool if: > <

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Lecture 1 10 10 Wool example continued… Prices: Pf =\$100/bale Pc =\$400/bale
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## This note was uploaded on 04/20/2010 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Econ 101 Winter 2010 Lecture 4 - Economics 101...

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