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microbook_3e-page31 - else would have been greater than the...

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sweet it wasn’t Q: Would a 15 percent decrease in consumption of everything else a massive disruption in the economy? A: If you could consume the same amount of sugar that you did last year, but your consumption of everything else fell 15 percent, would you be happy? lesson from Cuba’s experiment x a country should produce at the point along its PPF, where the opportunity cost of producing a good (ex. sugar) equals the relative price of that good x Cubans suffered because their country produced at a point where the opportunity cost of producing sugar exceeded the relative price of sugar x Similarly, had Cuba allocated all of its resources to producing “everything else” and produced no sugar it also would have suffered o because at such a point, the opportunity cost of producing everything
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Unformatted text preview: else would have been greater than the relative price of everything else o (from the opposite perspective…) because at such a point, the opportunity cost of sugar would have been less than the relative price of sugar Why did Bill and Colleen completely specialize in one good? x A country should completely specialize in the production of one good o ONLY if the relative price of that good is greater than the country’s opportunity cost of producing it at every point along the PPF o Bill and Colleen’s opportunity cost was constant all along their PPFs x the PPF I drew for Cuba assumes increasing opportunity cost – i.e. Cuba’s opportunity cost of producing sugar increases as it produces more sugar Page 31...
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