ECON 102 Lecture Notes - Lecture 22: Horse Length, Lead, Autarky

• School: U of M
• Department: Economics
• Course: ECON 102
• Professor: Adam Stevenson

Document Summary

Recall the model of macro production of specific goods: the ppf. Ex) production of 1 unit of peppers takes 3 l. Production of 1 unit of beef takes 5l. How does an economy make a productive choice in autarky (economic isolation, no trade) A fully-informed, benevolent social planners makes the same welfare-maximizing choice as under competitive markets. Tangency of ppf and community indifference curves. There is an intra-country market for each good, so that the relative domestic price of each good partially determines the level of output. Slope of ppf = - relative price of x axis good. Which holds in autarky as long as both goods are produced. 2 types of autarky outcomes, both goods are produced or only one is produced. Production and consumption are identical in autarky, but this does not hold when trade opens up. Consider there is now another economy in addition to economy a. Takes 2 l to produce one unit of peppers.