EC101sOutlines04ProductionFrontier

EC101sOutlines04ProductionFrontier - EC101 BB &...

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Unformatted text preview: EC101 BB & EE / Manove Lecture 4: Production, Specialization and the Gains Specialization and the Gains from Trade Specialization p 1 EC101 BB & EE / Manove The Production Process The entire production process is a series of transformations in which the primary factors of production production become the final goods and services desired by households households. First we describe what the primary factors of production are. The we describe which combinations of goods can be made out of them, and how the factors of production should be used to get the desired combination. Supply & Demand p 2 EC101 BB & EE / Manove Primary Factors of Production The primary factors are in puts into the production process that originate outside the productive sphere. The availability of labor and land is mainly determined by non-economic forces, but capital formation is an economic process. Market System>The Market Economy>Primary Factors p 3 but capital formation is an economic process. EC101 BB & EE / Manove Capital Formation: The Rabbit Hunter There was a cave woman who hunted rabbits for a living. Market System>The Market Economy>Capital Formation p 4 EC101 BB & EE / Manove Capital Formation: The Rabbit Hunter On the average, she caught only one rabbit a weekso she was always hungry. She decided she could do better She decided she could do better, and she engaged in the process of capital Market System>The Market Economy>Capital Formation p 5 formation. EC101 BB & EE / Manove The cave woman decided to build a sling a capital good Capital Formation: The Rabbit Hunter (a capital good) But when the sling was completed, she But when the sling was completed, she could kill one rabbit every day, so she had a lot more to eat (returns to capital Market System>The Market Economy>Capital Formation p 6 so she had a lot more to eat (returns to capital) . EC101 BB & EE / Manove...
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EC101sOutlines04ProductionFrontier - EC101 BB &...

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