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Unformatted text preview: -Production Point slides along PPF (produce more x and less y if Px/Px is greater than autarky and produce more y and less x if Px/Py is less than autarky.)-Trade line (consumption frontier) is drawn tangent to new production point-Consumption frontier will lie to northeast of Autarky consumption and production point (we could have more of everything if we choose) Why is the slope of the PPF concave?-Need more than one input (Factors of Production)-Need special (but plausible) assumptions about technology-Assume two factors of production (labor and capital)-Technology is the knowledge of how we combine capital and labor to produce output-Assume that production of different types of goods use capital and labor in different proportions. Kx = Amount of capital used to produce x Lx = Amount of labor used to produce x Kx/Lx = The capital intensity of sector x...
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