ECON 040 Lecture Notes - Lecture 9: Autarky, Sunk Costs
10 Aug 2020
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Document Summary
Trading between economies: international trade and the cpc. Consumption possibility curve (cpc) shows all combinations of goods that the agents in the economy can consume. If a country is a closed economy (no international trade) then ppc and cpc are identical (what is produced is what is consumed) If a country is an open economy (trades internationally), cpc > ppc bc part of what agents produce can be traded for other goods and services. Assume on the int. market, 1kg bananas can be traded for 0. 75kg rabbit. If 1kg bananas is sold, you have point a". If 2kg are sold, you have point a"". The line drawn represents the cpc available when the economy producesa combination represented by point a on the ppc. Consider point c and plot c" and c"" in the same way. The line drawn is the cpc above the ppc maximum consumption. Compare oc of international price and oc of production.
