Int Econ-Ch03-S2012 International Economics 国际经济学课件.pptxVIP

CHAPTER T H R E EThe Standard Trade Model An Extension of the Classical Theory of Trade using graphsIncreasing opportunity costsProduction Possibilities Frontier (Curve)-PPC:Straight line (constant opportunity cost) vs Bowed out (increasing opportunity cost) PPC.The straight line PPC shows that each unit of resources used in the production process are perfect substitutes. The same amount would be given up every time, we try to produce one more unit of another product.The opportunity cost of producing one unit of Wheat is 2/3 units of Cloth.Increasing opportunity costsBowed Out PPC:Increasing amounts of another item must be given up in order to release sufficient resources to produce one more unit of a given item.What does increasing opportunity cost indicate?Non-homogenous factors of productionFactors of production are not used at constant (fixed) proportions in production.The less and less of one item we have, the more important it becomes to us.Implications for the production possibility frontierThe marginal rate of transformation (MRT) increases as more units of good X are produced.The marginal rate of transformation is another name for opportunity cost.The value of MRT is given by the slope of the PPF.YXIndifference curvesA community indifference curve displays the combinations of two products that offer equal level of satisfaction (utility).YXIndifference curvesCharacteristics of Indifference CurvesNegative Slope (to consume more of one product, we must give up another product). Convex to the origin (the amount we are willing to give up to get one more of the other product decreases). As we go from left to right on an IC, the slope declines, indicating that we are willing to give up less and less of one good to get more of the other.Different Curves do not cross (more is preferable to less; people are rational)A Community Indifference curve mapSlope of IC is called the marginal rate of substitution (MRS); it falls as more of one good (say, X ) is consumed.I.