ECON 102 Lecture Notes - Lecture 22: Autarky, Linear Technology, Absolute Advantage

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

Document Summary

Lecture 22: trade 1 the argument in favor of trade: a review of macro choice, the ricardian argument, optimal trade. Today, we start to investigate that neglected tail of our aggregate expenditure identity, If some trade is bad , what policies can we use to influence our trade. Recall our model of macroeconomic production of specific goods, the ppf. To draw a ppf of a specific economy, we must know the resource stock and the productive technology of that economy. To keep things simple today, we"ll assume a linear production technology. Can describe production (with a linear technology and only one input, labor (l)) like so: Production of 1 unit of peppers takes 3 l. Production of 1 unit of beef, takes 5 l. A fully-informed, benevolent social planner makes the same welfare-maximizing choice as under competitive markets. Tangency of ppf and community indifference curves.