ECON 3150 Lecture Notes - Lecture 2: Opportunity Cost, Equilibrium Point
17 Jan 2016
School
Department
Course
Professor
ECON 3150 Lecture 2 5/5/2011 9:01:00 PM
US: 10000K ROSES : 100 K computers
Ecuador: 10000K Roses : 30K comuters
opportunity cost of computer
US: 1 computer : 100 Roses
Ecuador: 1 computer : 3333 Roses
One Factor Ricardian Model - Labour
• Unit labor requirement: the constant number of hours of labor
required to produce one unit of output
• High ULR, means low labor productivity
• PPF (Production Possibility Frontier)
=> Qw = (L/alw) – (alc/alw)Qc
Opportunity Cost of Cheese : alc / alw
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Equilibrium point of quantity supplied is determined by the price.
Pc: price of cheese ; Pw: price of wine
Wage Rate (Wc)= Pc/alc
Wc* alc = Pc
Pc/alc vs. Pw/alw
Not trading:
• Pc/Pw = alc /alw => equilibrium
• Pc/Pw > alc /alw => only produce cheese
• Pc/Pw < alc /alw => only produce wine
Opportunity Cost of Cheese : Pc / Pw
E.G.
Unit labor requirements for domestic and foreign countries
Cheese
Wine
Domestic
aLC = 1 hour/kg
aLW = 2 hours/L
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find more resources at oneclass.com
