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Production Possibilities Frontier

Production Possibilities Frontier - amount of items they...

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9/8/11 Economics Continuation of 9/6/11 Could say at midpoint of ppf-middle of the numbers of ppf Trading helps if you look at the number of production, how has the world production of something changed?-look at the numbers and how they were produced-look at total world production What should the terms of trade be? How much should Argentina pay for a hat from Chile? o It has to lower than their own opportunity cost o Maximum Argentina would be willing to give up, if the amount matches they might decide to trade to just get more of that good o Chile’s minimum would be .75 kegs of beer o The terms of trade would be between the opportunity cost of producing one unit of each item o Maximum is the answers you got from the comparative advantage numbers Ex: 1 hat for 1 keg of beer would work Consumption after trade is minus the amount of items they sell and adding the
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Unformatted text preview: amount of items they receive o To show how much more you subtract the original production to consumption after trade • Yes, but… • We see that countries as a whole can gain from trade if each exports the goods in which it has a comparative advantage. • But, who within the country benefits from trade? Who does trade harm? o We will apply the tools of welfare economics to see where these gains come from and who benefits from them. o Beer companies are closed so those workers are mad o Individual groups-some benefit some lose but there is an overall benefit o The hat industry gained in Chile and cheaper in Argentina to buy A Few More thoughts about the PPF (production possibilities frontier)...
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