A Step by Step Guide To The Principles of Microeconomics 2nd Edition Huntington-Klein

A STEP BY STEP GUIDE TO THE
PRINCIPLES OF MICROECONOMICS
2nd Edition Huntington-Klein
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A Step-by-Step Guide to the
PRINCIPLES OF
MICROECONOMICS
Second Edition
NICK HUNTINGTON-KLEIN
\\\V/, KONA (.ROUI’

u [’UHI.I>H|\'(. L\ .\\l:l)|‘\
Kona Publishing & Media Group
Higher Education Division
Charlotte, North Carolina
www.konapublishing.com
Cover and Interior Design: Execustaff Composition Services
Copyright © 2018 by Kona Publishing & Media Group
No part of this publication may be reproduced or distributed in any form

or by any means, or stored in a database or retrieval system, without the prior
written consent of Kona Publishing & Media Group.
978-1-945628-41-2
CONTENTS
—
PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
How Students Can Use the Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
How Educators Can Use the Book
ACKNOWLEDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
ABOUT THE AUTHOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
CHAPTER I COMPARATIVE ADVANTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l

La Glossary and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lb How to Calculate Comparative Advantage . . . . . . . . . . . . . . . . . . . . 2
1.5 How to Draw Production Possibilities Frontiers . . . . . . . . . . . . . . . . 4
I.c.i How to Draw a Production Possibilities Frontier for One Person. . . . 4
1.c.ii How to Draw a Production Possibilities Frontier for Two People. . . . 7
1.c.iii How to Draw a Production Possibilities Frontier for a
Whole Economy.........................................1 0
I.d How to Find Consumption With and Without Trade . . . . . . . . . . . . 12
Le How to Shift a Production Possibilities Frontier ...............1 5
Practice Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
CHAPTER 2 SUPPLY AND DEMAND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2a Glossary and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2!: How to Make a Supply Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.: How to Draw a Supply Curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.0 How to Make a Demand Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.9 How to Draw a Demand Curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
2f How to Aggregate Individual Supply and Demand Curves to
Get Market Supply and Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
iii
iv CONTENTS
2.9 How to Predict Shifts in Supply and Demand . . . . . . . . . . . . . . . . . 37

2.g.i How to Predict Shifts in Supply and Demand: Complements
and Substitutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.h How to Find Excess Supply (Market Surplus) and Excess
Demand (Market Shortage) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
2.i How to Calculate Market Equilibrium . . . . . . . . . . . . . . . . . . . . . . . 44
EJ How to Graph Market Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . 46
3k How to Find the New Equilibrium when Supply and
Demand Curves Shift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.k.i How to Find the New Equilibrium When One Curve Shifts . . . . . . . 47
3.k.ii How to Find the New Equilibrium When Both Curves Shift
at Once . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Practice Problems ...................................... 52
CHAPTER 3 ELASTICITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.3 Glossary and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3.!) How to Calculate Percentage Change . . . . . . . . . . . . . . . . . . . . . . . 58
3.b.i How to Calculate Percentage Change Using the Standard Method. . . 5 9
3.b.ii How to Calculate Percentage Change Using the Midpoint Method . . 60
How to Calculate Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.c.i How to Calculate Price Elasticity Using a New Point and
an Old Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.c.ii How to Calculate Price Elasticity Using a Supply Curve or
a Demand Curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.c.iii How to Calculate Income or Cross-Price Elasticity Using a
New Point and an Old Point. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
3.0 How to Draw Price Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.9 How to Use Elasticity When the Supply or Demand Shift . . . . . . . 71
3.f How to Determine if Something i s Elastic, Inelastic, or
Unit Elastic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Practice Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
CHAPTER 4 MARGINAL VALUE AND MARGINAL COST . . . . . . . . . . . . . . . . . . . . . 79

Ha Glossary and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Lib
Marginal Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8O
Ll.b.i
How to Calculate Marginal Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Ll.b.ii
How to Derive a Supply Curve from Marginal Cost . . . . . . . . . . . . . 82
CONTENTS V
Ll.b.iii
How to Find Marginal Cost on a Supply Curve . . . . . . . . . . . . . . . . . 83
Ll.b.iv
How to Calculate and Graph Producer Surplus .................8 5
Marginal Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
l-l.c.i
How to Calculate Marginal Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Ll.c.ii
How to Derive a Demand Curve from Marginal Value . . . . . . . . . . . 90
L4.1:.iii
How to Find Marginal Value on a Demand Curve...............91
Ll.c.iv
How to Calculate and Graph Consumer Surplus ................9 3
LLCI How to Graph Producer Surplus and Consumer Surplus
Change When Price Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
LLB How to Determine the Optimal or Efficient Level of an Activity . . . 99
LLf
Deadweight Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
LI.f.i
How to Calculate Deadweight Loss.........................101
l4.f.ii
How to Graph Deadweight Loss ...........................104
Practice Problems ..................................... 106
CHAPTER 5 GOVERNMENT POLICY IN COMPETITIVE MARKETS . . . . . . . . . . . . Ill

5.3 Glossary and Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.13 How to Model Price Maximums (Price Ceilings) . . . . . . . . . . . . . 112
5.: How to Model Price Minimums (Price Floors) . . . . . . . . . . . . . . . 115
5.1:! How to Model Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
5.9 How to Calculate Tax Incidence . . . . . . . . . . . . . . . . . . . . . . . . . . 122
S.f How to Model Quotas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
5.9 How to Model International Trade . . . . . . . . . . . . . . . . . . . . . . . . . 130
Practice Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
CHAPTER 6 THE PRODUCTION PROCESS IN COMPETITIVE MARKETS. . . . . . I39

5.13 How to Distinguish Fixed and Variable Costs . . . . . . . . . . . . . . . . 141
6.c How to Fill Out a Cost, Revenue, and Profit Table ............ 143
6.1:! Average Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
6.d.i How to Calculate Average Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
5.d.ii How to Graph Average Costs..............................148
6.9 How to Determine the Profit-Maximizing Quantity . . . . . . . . . . . 149
5.f How to Graph a Firm in a Competitive Market . . . . . . . . . . . . . . . 151
6.9 How to Calculate Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
5.11 Long-Run Market Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
6.h.i How to Predict Entry and Exit.............................153
vi CONTENTS
6.h.ii How to Model the Market and the Firm Together ..............155
6.h.iii How to Find Long-Run Equilibrium Price and Quantity.........158
5.h.iv How to Graph Long Run Average Total Cost . . . . . . . . . . . . . . . . . 158
Practice Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
CHAPTER 7 MONOPOLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I67

7.13 How to Distinguish between Market Structures . . . . . . . . . . . . . . 168
7.: The Model of Monopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
7.r:.i How to Find Marginal Revenue Using a Demand Curve . . . . . . . . 170
7.c.ii How to Determine the Profit-Maximizing Quantity and Price . . . . 172
7.c.iii How to Calculate Monopoly Profit .........................173
7.C.iv How to Find Deadweight Loss in a Monopoly ................174
7.C.V How to Graph a Monopoly ...............................176
7.t:.vi How to Graph a Natural Monopoly .........................177
7.d Monopolistic Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178
7.d.i How to Find Short-Run Equilibrium in Monopolistic
Competition ...........................................178
7.d.ii How to Graph Long-Run Equilibrium in Monopolistic
Competition ...........................................179
Price Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
7.e.i How to Graph Perfect (First-Degree) Price Discrimination ......180
7.e.ii How to Graph Less-than-Perfect (Third-Degree) Price
Discrimination .........................................181
7.e.iii How to Calculate Hurdle (Second-Degree) Price Discrimination . . . 182
CHAPTER 8 GAME THEORY AND OLIGOPOLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

8.13 How to Draw a Game Table (Normal Form) for
Simultaneous Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190
8:: How to Find Nash Equilibria in a Game Table . . . . . . . . . . . . . . . 193
8.0 How to Draw a Game Tree (Extensive Form) for
Sequential Games . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
8.9 How to Solve a Game Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
8.f How to Predict the Effect of Repeated Interaction on G a m e s . . . . 203
CONTENTS Vii
CHAPTER 9 EXTERNALITIES AND PUBLIC GOODS . . . . . . . . . . . . . . . . . . . . . . . . 2| l

9.13 How to Graph Extemalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
9.: How to Find the Efficient Outcome under an Extemality . . . . . . . 214
9d Pigouvian Tax or Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 216
9.d.i How to Calculate the Optimal Pigouvian Tax or Subsidy . . . . . . . . 216
9.d.ii How to Graph the Optimal Pigouvian Tax or Subsidy . . . . . . . . . . 218
9.9 How to Use the Coase Theorem to Solve an Extemality . . . . . . . . 219
9.f How to Distinguish Types of Goods . . . . . . . . . . . . . . . . . . . . . . . 221
9.9 How to Find Efficient and Market Outcomes for Different
Types of Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
9.g.i Public Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
9.9.“ Common Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
9.g.iii Artificially Scarce Goods/Club Goods. . . . . . . . . . . . . . . . . . . . . . . 228
Practice Problems ..................................... 231
ANSWERS T0 ODD-NUMBERED QUESTIONS . . . . . . . . . . . . . . . . . 235
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
PREFACE
—
How Students Can Use the Book

Hello, there.
You will find that this book takes a relatively different approach from a regular
textbook for Principles of Microeconomics. Most of those books are written with
long-form prose explaining economic theory and models. That’s great stuff, and there
are a lot of fantastic textbooks out there.
However, where many of them fall short is in helping you figure out how to use
that theory and those models yourself! That’s too bad. It’s most important to have a
good grasp of the concepts, of course, but the technical parts of economics provide
some real insight into what’s going on. And if your professor is already explaining
those concepts to you in class, your regular textbook can feel a little redundant.
So, this book takes a very straightforward approach of what to do and how to do
it. I’ve always found it frustrating that it’s so hard to find material that will really walk
you through these models, when the models you see in Principles seem almost tailor-
made to allow that sort of thing! That’s why I wrote this book.
S o , what can you do with this book?
I You can use it to learn, in a no-messing-around manner, about the models you
see in your Principles of Microeconomics course—what the pieces mean and
how to work with them.
I You can use it to learn how to work with those models and solve the kinds of
problems you see in class.
I You can learn why those solutions work conceptually.
I hope that you get something out of this material, and good luck in your class!
X PREFACE
How Educators Can Use the Book

This book offers students a step-by-step guide using the models we see most often in
Principles of Microeconomics. Having a guide like this available for your students
serves a few important functions:
I Standard textbooks do their best work when they’re focusing on explaining

economic concepts in great detail. The typical format is that they will explain
a concept in a few paragraphs of text, and then show a graph or table explain-
ing the model. However, this approach often makes it difficult to understand
exactly how the concept relates to the model. In the “Why” columns of this
book that accompany every step, I make sure to explain (with the brevity to
make reading it a MB > MC choice) exactly how the part of the model relates to
the concept, and why we’re doing what we’re doing. There’s no longer a miss-
ing link between the economic concept and the model of that concept. When
you have students work through these models with this book, paying attention
to the “Why” column will improve their understanding of what the model is
actually for.
I A s anyone who has taught Principles of Microeconomics knows, there is

always a section of the class that has trouble with the technical side. Whether
they’re not mathematically prepared, or they are but they’re just not used to
the kinds of graphs and equations economists use, some students need a little
extra help here. In my graduate school days, I spent plenty of time as a tutor
and I saw these students all the time. What I found often helps these students
are no-distractions, here’s-the-way-it-works explanations of the models. That’s
what this book offers. Making this book available as supplementary material
for your students can head off these sorts of problems.
I Many of us structure our classes so that we are focusing on explaining the basic
economic concepts ourselves in our lectures, through newspaper articles, and
in our own notes made available to the class. If you’re already doing a good
job explaining the economic intuition that forms the basis of the class, then
the standard textbook becomes a little redundant, since that’s also what i t i s
trying to do. You can push this even further, getting rid of the normal textbook
entirely, which leaves you more room to demonstrate concepts in your own
PREFACE xi
way, and provide more readings from the real world. Of course, doing that
leaves a gap, since getting technical material to stick in students’ heads without
a way to work through it on their own is a little tougher than for concepts. This
book, assigned as a primary text, fills that gap. It’s an inexpensive guide that
helps students work through the technical side of the material so they can focus
on the important concepts in their own way.
ACKNOWLEDGEMENTS
—
Thanks to Spike, Mom & Dad, Susan & David, my alma maters, and of course the
California State University at Fullerton.
ABOUT THE AUTHOR
—
Dr. Nick Huntington-Klein is an Assistant Professor of Economics at California

State University Fullerton. He holds a PhD in Economics from the University of
Washington Seattle, and an undergraduate degree from Reed College. He is the author
of numerous journal articles and reports, mostly on the topics of labor and educa-
tion economics. He was inspired to write this book through his experience teach-
ing Principles of Microeconomics at Fullerton and at Seattle University, as well as
through his work tutoring in person and online.
Glossary and Concepts
Opportunity Cost is what you have to give up in order to get something. However,
this cost is not usually measured in terms of dollars. Instead, it is measured in terms
of what you could have had if you’d made a different decision. For example, if you
are thinking about whether to spend your evening at the movies or going to a play, the
opportunity cost of going to the movies is that you don ’I get to go to the play.
Absolute Advantage is when you are better at something than somebody else. If you
gave the author of this book and a famous basketball player five minutes to shoot as
many baskets as possible, the basketball player would make more baskets. He would
have an absolute advantage.
Comparative Advantage is when you are better at something relative to other tasks
than somebody else. In other words, it is when you have a lower opportunity cost for
a particular task than somebody else. If you told the author of this book and a basket-
ball player to spend their time making baskets or running a mile, the basketball player
would be better at both. But the basketball player would be much, much better at
making baskets, and only somewhat better at running a mile. So, the basketball player
would have a comparative advantage in making baskets, and the author would have
a comparative advantage in running a mile.
Specialization is when people spend most or all of their time doing the things that
they have a comparative advantage in.
Autarky is when a person or country produces everything it needs, rather than spe-
cializing and trading with others. This term usually refers to countries rather than to
individuals.
2 CHAPTER 1 COMPARATIVE ADVANTAGE
Specialize and trade refers to people spending most or all their time doing the one
thing they have a comparative advantage in, and trading with others to get all the
things they need. An example is if you work at a job you’re good at in order to earn
money, and you use that money to buy food, clothes, and shelter, rather than making
your own food, clothes, and shelter.
A production possibility frontier (also known as a production possibility curve)

describes the different mixes of things you could make given the resources available
to you. If you could spend all day writing songs and end up with 5 songs, or instead
spend all day packing lunches and end up with 1 0 lunches, then “5 songs, 0 lunches”
and “0 songs, 1 0 lunches” would both be on your production possibility frontier.
How to Calculate Comparative

Advantage
WHAT YOU NEED TO START: Two people or countries, two activities they can do or goods
they can make, and information about how much of those activities they can do or
how many goods they can make (their capacity to produce those goods).
These steps will be stated in terms of people doing activities, but the steps work
the same for countries producing goods.
STEP 1
WHAT YOU DO If the problem is stated in terms of capacity (“Sheila can fill out 3
forms in an hour”), then skip this step. If the problem is stated in terms
of costs (“It takes Sheila 20 minutes to fi l l out a form”), then convert
it into capacity by picking a fixed amount of time and calculating how
many units the person can make in that time.
Example:
If i t takes Sheila 20 minutes to fi l l out a form, and it takes Mark 3 0
minutes, then Sheila can fi l l out 3 forms i n an hour, and Mark can fill
out 2 .
WHY The rest of the steps listed depend on stating everything in terms of
capacity.
STEP 2
WHAT YOU DO Draw a table that shows the number of units of each activity A and B
each person can do in a fixed period of time (their Capacity).
Example:
Sheila Mark
Forms 3/hour 2/hour
Letters 5/hour 3/hour
WHY This table will make clear what each person could produce if they
spent all their time on that activity. If Sheila spent her whole hour
sending letters, she’d send 5 letters and fill out 0 forms.
STEP 3
WHAT YOU DO For each person, calculate their opportunity cost (0C) for activity A
using the formula:
_ Capacity 3
Capacity A
and for activity 3 using the formula:
OCB= Ca Paci.tYA
CapacztyB
Example:
For Sheila,
. 5 .
ocShezla : _, ocSheila : _
Fomts 3 Letters 5
For Mark,
ocMark‘ : 2 ocMark : _
Forms 2 ’ Letters 3
WHY Opportunity cost is what you give up in order to get something. If

someone spends all their time on task B, they get CapacityB. If you
imagine that person giving up all their B to spend all their time on A
instead, they get CapacityA. So, the cost of each unit of A (OCA) is
what they gave up (CapacityB) divided by the number of units of A

they got for it (CapacityA).
Ll
STEP
WHAT YOU DO Each person has a comparative advantage in the task for which they
have the lowest opportunity cost.
Example:
0C123353 = g and OCMark
Forms = 3 . Since g > 3 , Mark has a comparative
advantage in Forms.
. 2 2
OCfiggfi = g and OCfljflfis = 3 . Since 5 > %, Sheila has a compara-
tive advantage in Letters.
WHY You have a comparative advantage when you can produce something
at the lowest cost, relative to other possible uses of your time. “Cost,
relative to other possible uses of your time” is what opportunity cost
measures. So, whoever has the lowest opportunity cost of doing some-
thing has a comparative advantage in it.
Unless two people have the exact same opportunity costs, each person
will always have a comparative advantage in something.
How to Draw Production

Possibilities Frontiers
1-9;! How to Draw a Production Possibilities
Frontier for One Person
WHAT YOU NEED TO START: Two activities the person can do or goods they can make, and
information about how much of those activities they can do (their Capacity, see 1.b).
STEP 1
WHAT YOU DO Draw a set of axes. On one axis should be Activity A . On the other axis
should be Activity B.
Example:
For a PPF describing the amount of Com or Wheat someone can make,
you would draw:
Corn“
Wheit
WHY A PPF describes the mix of activities you can do. The axes of the PPF
should describe how much of each activity you’re doing, and so it
should be labeled with the activities.
STEP 2
WHAT YOU DO Label each axis with the person’s capacity. So, if a person can do at most
4 units of Activity A, label the number 4 on the axis for Activity A.
Then, draw a straight line connecting those two points on the axis.
Example:
If James can make 3 units of Com or 4 units of Wheat, we would label:
Cornll
4 VVheEt
6 CHAPTER1 COMPARATIVE ADVANTAGE
WHY The PPF describes the things you can do. So, if you can do 4 units of
Activity A if you spend all your time on it, then “4 units of Activity A
and none of any other activity” should be on your PPF, since it’s
something you can do, and it takes all your time. That mix—4 of A
and O of B—is on the Activity A axis, since you’re doing 0 units of
Activity B on the axis.
Once you have your axis points, you connect them with a straight line,
since for a single person you’re just dividing up your time, and so
should be able to trade off doing one activity for another without your
opportunity cost changing. The opportunity cost, from 1 b , is the ratio
of the capacities, which is also (the negative of) the slope of the line!
So, the slope of the line shows you the opportunity cost of producing
the good on the x-axis. Since the opportunity cost doesn’t change, the
slope doesn’t change, meaning it’s a straight line.
STEP 3
WHAT YOU DO If you have a second person and want to graph their individual produc-
tion possibility frontier as well, you can put it on the same set of axes
by repeating Step 2. B e careful to label the two different lines!
Example:
If we also have Andrea, who can make 2 units of Com or 5 of Wheat,
we could graph both James and Andrea at once:
Corn“
3 James
Andrea
4 5 Wheat
CHAPTER 1 COMPARATIVE ADVANTAGE 7
WHY The individual PPFs both naturally should be on graphs with the same
activities on the axes, so there’s no reason not to graph them together.
Be careful, though—this is not the shared PPF. We are just graphing
two individual PPFs together. For a shared PPF, see 1.c.ii.
Laii. How to Draw a Production Possibilities

Frontier for Twe People
WHAT YOU NEED TO START: Two activities the person can do or goods they can make,
information about how much of those activities they can do (their Capacity, see 1 b ) ,
and which of them has a comparative advantage in each activity (see 1.b).
STEP 1
WHAT YOU DO Draw a set of axes. On one axis should be Activity A. On the other axis
Example:
For a PPF describing the amount of Com or Wheat someone can make,
you would draw:
CornH
Wheat
STEP 2
WHAT YOU DO For each activity, determine the amount that would be produced if
both people spend all their time on that activity. Label this point on the
axis for that activity.
Example:
If James can make 3 units of Corn or 4 of Wheat, and Andrea can
make 2 units of Com or 5 of Wheat, and if they spent all their time on
Corn, they would make 3 + 2 = 5 units. If they spent all their time on
Wheat instead, they would make 4 + 5 = 9 units.
Corn“
5?
.—
9 Wheat
WHY The PPF describes the possible mixes of activities that you can per—
form or goods you can make. We know that these two people working
together can’t possibly do more of an activity than they would if they
spent all their time on it (and so produce zero of the other good). So,
if we add up what they’d do while spending all their time on it, then
we’d end up with the axis point on the shared PPF.
STEP 3
WHAT YOU DO Determine the kink point. The kink point is where each person is fully
specializing in the activity they have a comparative advantage in. For
each activity, the amount produced is how much the person with the
comparative advantage in that activity would produce by spending all
their time on it.
Connect the dots on the axes to the kink point to complete the shared
PPF. The result should “bow out” a little.
Example:
Andrea has a comparative advantage in Wheat and can make 5 units
of Wheat. James has a comparative advantage in Corn and can make
3 units of Com. S o , at the kink point, there are 5 units of Wheat and
3 units of Com produced.
Corn“
Andrea
m-——--_
9 Wheat
WHY The (negative of the) slope of the PPF represents the opportunity cost
of making another unit of the good on the x-axis. And so there must
be two different slopes—one representing Andrea’s opportunity cost
of Wheat, and one representing J ames’s opportunity cost of Wheat.
In order to u s e our most efficient resources first, we have Andrea

produce the first few units of Wheat, since she has the comparative
advantage. So, her part of the PPF is furthest to the left (covering the
first 5 units of Wheat). Then, only when she is already spending all
her time on Wheat (making 5 Wheat) do we switch to having James
make Wheat. That’s the point where the slope shifts. And at that point,
James is spending all his time on Corn (making 3 Corn).
l.l:.iii How to Draw a Production Possibrhties

Frontier for a Whole Economy
WHAT YOU NEED TO START: A list of two goods the economy can produce.
STEP 1
WHAT YOU DO Draw a set of axes. On one axis should be Activity A . On the other axis
Example:
For a PPF describing the amount of Com or Wheat an economy can
make, you would draw:
CornH
Wheat
STEP 2
WHAT YOU DO Draw a curved line that starts out with a shallow slope and gets steeper
as you move further to the right (making a shape like a bow pulled
back). T h i s i s the PPF.
Example:
Corn“
Wheat
WHY An economy has many different resources available to it. The (nega-
tive of the) slope of the PPF represents the opportunity cost of switch-
ing one of those resources from being used to make Corn to making
Wheat instead. Because all the resources have different opportunity
costs, and we want to use the lowest-opportunity cost (shallowest
slope) resources first, the slope of the PPF continually gets steeper as
you move from left to right.
STEP 3
WHAT YOU DO If you are given the productive capacity of the economy, label the axes
with the most the country could produce of each good.
Example:
If this economy could produce at most 10,000 units of Com or 8,000
units of Wheat, label:
Corn“
10,000
8,000 Wheit
WHY The axis points represent how much is produced when the economy
only makes that good. And so, we can label the axes with the amount
we get if we spend all of our resources on that one good, making only
that good.
How to Find Consumption

With and Without Trade
WHAT YOU NEED TO START: Two people or countries, two activities they can do or goods
they can make, and information about how much of those activities they can do or
how many goods they can make. You will also need to know who has a comparative
advantage in each task (see 1.b).
These steps will be stated in terms of people doing activities, but the steps work
the same for countries producing goods.
STEP 1
WHAT YOU DO If there is no trade, go to Step 2. If there is specialization and trade, go
to Step 3.
STEP 2
WHAT YOU DO For each person, determine how many units of good A they are required
to produce, GoodA.
If the problem says something like “they want an equal number of

good A and good B,” then write out the PPF, plug in GoodA = GoodB,
and solve for GoodA.
Then, go to Step 4 .
Example:
If the problem states that Aaron must produce two cans of beans,
and Betty must produce two cans of beans, then BeansA‘m’"= 2 and
Beans Betty = 2.
If the problem states that Aaron must produce an equal number of cans
of beans and cans of soup, and Aaron’s PPF is Beans = 6 — ZSoup, then
Beans/WU" = 6 — ZBeansAar‘m
3BeansA‘m’” = 6
BeanSAaron = 2
WHY The PPF alone won’t tell us which point on the PPF they will choose,
so the problem must tell you the amount they choose to produce.
If we want to solve for how much they make if they make an equal
amount, we can do this by solving the PPF (which describes poten-
tial production mixes) alongside GoodA = 000613, w h i c h describes all
production mixes with the same amount of good A and good B.
STEP 3
WHAT YOU DO Determine how many units of GoodA the two people together must
produce of good A.
Then, divide the production of good A across the two people. Whoever
has a comparative advantage should be the first to work on making
good A . If GoodA is bigger than the total number of units that the person
with comparative advantage can make, the other person makes the rest.
Example:
If the problem states that Aaron and Betty must produce four cans of
beans together, then Beans = 4. If Aaron has a comparative advantage
in beans, and can make at most 3 cans of beans, then BeansA‘m’" = 3
and BeansBe”y = 4 — 3 = l .
WHY The person with a comparative advantage in a certain task should
always be the first person assigned to do that task, since that maxi-
mizes productivity. Others should only start working on it once the
person with a comparative advantage is already doing as much as he
or she can.
S T E P '4
WHAT YOU DO Calculate the fraction of their time each person spends producing good
A by dividing the number of units they produce by the total number
they could produce if they spent all their time on it.
GoodA
TimeA =
Capacity A
Example:
If Aaron and Betty each produce 2 cans of beans, Aaron could produce
at most 4 cans, and Betty could produce at most 3 cans, then
TimeBeans Am”
= = l
2
3"”
TimeBeans =
WHY In order to figure out how much time people will have left to work on
other activities, we must first figure out how much of their time they
have already spent producing good A.
STEP 5
WHAT YOU DO Multiply the proportion of each person’s time remaining (1 — TimeA)
by that person’s maximum capacity to produce good B to find the
number of units of good B they will produce.
GoodB = ( l — TimeA)CapacilyB
Example:
If Betty spends 2/3 of her time making beans, and could make 6 cans
of soup if she spent all her time on soup, then the number of cans of
soup she makes is
SaupBe’W = ( 1 _ § ) 6 = g = 2
WHY The number of units of a given good someone can make is determined
by the amount of time they must spend making it. If you could make X
units of something if you spent your whole day on it, but instead you
only spend 1/4 of your day on it, you’ll end up making X/4 units.
STEP 6
WHAT YOU DO Add together the amount each person produced of each good to find
the total amount of production.
How to Shift 21 Production

Possibilities Frontier
WHAT YOU NEED TO START: A production possibilities frontier (see 1.c), usually for a
country (1.c.iii), and a description of how that country’s production is changing.
STEP 1
WHAT YOU DO Determine if the change being described affects production of only
one of the goods on the PPF or both. If it only affects one good, go to
Step 2. If it has to do with expanding or contracting the total resources
in the economy, then it affects both, and go to Step 3.
Example:
On a PPF with the goods Corn and Wheat, “the machinery that har-
vests Com gets more efficient” would only affect the production of
Com, but “bad weather harms agricultural yields for all crops” or “an
influx of immigrants expands the labor force” would affect both Corn
and Wheat.
WHY The production possibilities frontier describes the possible production

mixes in the economy. And so, to figure out the effect of a change, we
need to know exactly which parts of production are changing.
A change to just the production of Com will have a different effect on

total production than a change to the entire agricultural sector.
STEP 2
WHAT YOU DO If the economy has changed to increase the total production of the
good (perhaps by making production more efficient), then take the
PPF graph and stretch it up (if the good is on the y-axis) or to the right
(if the good i s on the x-axis). The axis intercept for the other good
should not move.
If the total production of the good has dropped instead, squash it down
or to the left.
Example:
If the machinery for harvesting Corn has changed, then the PPF shift
can be illustrated as below (the dashed line shows a decrease in pro-
duction, and the dots show an increase).
Corn“
Whegt
WHY If the productive capacity for only one good has changed, then the
maximum production for the other good should not change, since
nothing changed about the production of that good! This maximum
production is represented by the axis intercept, since this is the most
you can produce, spending all your resources making it. So, you can
imagine putting a finger on that point and stretching/squashing the rest
of the curve away from it to isolate those production changes for only
one good.
STEP 3
WHAT YOU DO If the total amount of resources in the economy has changed, then the
entire curve will shift out (if resources have increased) or shift i n (if
resources have decreased).
Example:
If bad weather harms yields for all crops, the PPF will shift inwards
in all directions. If an influx of immigrants expands the labor force,
the PPF will shift outwards in all directions as shown in the following
illustration. (The dashed line shows a decrease in inputs, and the dots
show an increase.)
Wheat
WHY If the economy gets more total resources, then those resources can be
spent on Corn or Wheat. The economy has just become more able to
produce overall. So, it will change the total amount of either that you
can produce, and both the x-intercept and the y-intercept should be
changed.
PRACTICE
Follow-the-Steps Questions
To solve, follow directions from one or more of the sections above.
1. In one minute, Sam can type 120 words or read 2 pages. In one minute, Amy can
type 80 words or read 4 pages. For each, calculate the opportunity cost of reading
one page, and determine who has the comparative advantage in reading pages.
2. Daphne can solve two mysteries per week, or write six news articles. Velma can
solve four mysteries per week, or write eight news articles. For each, calculate
the opportunity cost of solving one mystery, and determine who has the com-
parative advantage in solving mysteries.
3. It takes Ted 20 minutes to wax a car, or 60 minutes to wash one. It takes Tom 1 5
minutes to wax a car, or 3 0 minutes to wash one. What is each man’s opportunity
cost of washing a car, and who has the comparative advantage in washing cars?
4. Take Sam and Amy from Question 1. above. Graph their individual production
possibility frontiers if they have 10 minutes of time available.
5. Dingo the Clown is planning his six-minute stage act. He is trying to divide his
time between jokes and magic tricks. Each joke takes 30 seconds to tell, and
each magic trick takes two minutes. Draw Dingo’s production possibilities fron-
tier. (Draw it as a straight line.)
6. Take Sam and Amy from Question 1 above. Graph their shared production pos-
sibility frontier if they have 10 minutes of time available. You may find it helpful
to do Question 4 first.
7. Belly Steaks is a large restaurant. In an hour, they can produce 300 plates of food
or 150 desserts. Tooth Sweets is a bakery. In an hour, they can produce 50 plates
of food or 100 desserts. Draw their shared PPF with dessert on the x-axis. Label
the x- and y-intercepts and the kink.
CHAPTERl COMPARATIVEADVANTAGE 19
I n a year, the country of Towlia can produce at most 40,000 d i s h towels or

30,000 bath towels. Draw the PPF for Towlia.
In a day, Jerry can make 15 loaves of bread or 30 jars of jelly. In a day, Lindy can
make 30 loaves or 15 jars. If Jerry and Lindy each want 1 0 loaves of bread each
day, find how much jelly they produce in total when they’re not specializing and
trading, and then how much jelly they produce when they are specializing and
trading.
10. Casey spends his time either solving Sudoku puzzles or reading books. Casey’s
friend tells him a trick for solving Sudoku puzzles that makes him much faster
at them. Draw Casey’s PPF before being told the trick (PPF 1) and after (PPF2).
11. The small nation of Bayo produces cacao (x-axis) and coffee (y-axis). Fall/win-
ter production is PPF 1. Every spring, a bunch of temporary migrants who are
great at harvesting cacao, but useless at coffee, move to Bayo (PPF2). Every
summer, they are joined by more temporary migrants who are good at every-
thing (PPF3). Draw PPF 1, PPF2, and PPF3 on the same axes.
12. The country of Agasta produces clocks and cows. Then, due to a drought kill-
ing much of the grass, it requires more grazing land to raise each cow. Draw the
effect on Agasta’s PPF.
Concept Questions
A. Every day after class, Mr. Dabble’s third grade class must clean the room. Some
kids sweep and some kids put things away. Everyone thinks that sweeping is
more fun, and s o he lets the best-behaved kids sweep. I s the classroom likely
being cleaned as fast as possible? Why or why not?
Finish the sentence: “When someone can spend their time on X or on Y, the
opportunity cost of X is . . .”
In the shared production possibility frontier depicted in the following illlustra-

tion, who has the comparative advantage in brick? How do you know?
Metal
There are three brothers—Justin, Travis, and Griffin. Each of them can write
8 ghost stories in an hour. Or, they can spend their time grooming horses. Justin’s
opportunity cost of grooming a horse is 1 / 2 a ghost story. Travis’s opportunity
cost is 1 ghost story. Griffin’s opportunity cost is 2 ghost stories. If each of them
has an hour of time available, draw each of their individual production possibil-
ity frontiers, as well as their shared PPF.
Armond and Alvin currently do not specialize and trade. Every day, each of them
makes 1 0 shirts and 20 pairs of pants. Then, they decide to specialize and trade
with each other. But they find no gains from trade! Together they make 20 shirts
and 40 pairs of pants. What must be true about Armond and Alvin?
Why are country-level PPFs typically drawn as curves but individual-level PPFs
are drawn as straight lines?
The country of Khartem produces chairs and tables. Globally, they happen to
have a comparative advantage in tables, and export tables around the world.
Then, there’s a boom in interest in tables globally. It has suddenly become the
fashion to replace your tables every year, and so demand for tables has gone way
up, and the price for tables has as well. How will Khartem’s PPF shift?
Spike spends his time baking cakes and solving puzzles. The following graph
describes how much Spike can do in a day:
Cakes
PPF1
PPF2
Puzzles
Which could explain a shift from PPFl to PPF2?

. Spike is too busy that day to produce anything.
. Spike rented a second oven that day.
. Spike lost his handy cake-icing knife.
. Spike has a headache that will make puzzles harder to solve.
Jared and Shane are great examples of the kind of people who benefit from
trade. Jared is great at making jewelry but dislikes jewelry and loves shirts, while
Shane is great at making shirts but dislikes shirts and loves jewelry. Write down
Jared and Shane’s production capacities such that, without trade, each of them
consumes 1 unit of the thing they don’t like and 1 of the thing they do like, and
with trade each of them consumes 1 unit of the thing they don’t like and 11 units
of the thing they like. (Beware: this is a hard one!)
Glossary and Concepts
Supply is the relationship between the price of a good (price, or P) and the number
of units that producers want to make and sell of that good (quantity supplied, or
Q5). Supply is typically represented either as a supply schedule, which is a table that
relates P and Q3, or a supply curve, which is a function relating P to Q5 that can be
written algebraically or graphed.
Demand is the relationship between the price of a good (price, or P) and the num-
ber of units that consumers want to buy of that good (quantity demanded, or QD).
Demand is typically represented either as a demand schedule, which is a table that
relates P and Q0, or a demand curve, which is a function relating P to Q0 that can
be written algebraically or graphed.
Inverse supply and inverse demand are supply and demand curves written such that
they show price as a function of quantity (for example, P = 1 2 — QD), as opposed to
regular supply and demand curves, which show quantity as a function of price (for
example, QS = 2 + P). Inverse supply and inverse demand are typically what you
would draw on a supply and demand graph.
Individual supply and individual demand describe the relationship between the
price of a good (P) and either the quantity that an individual firm wants to produce
(for individual supply), or the quantity that an individual person wants to consume
(for individual demand). These can be contrasted to aggregate supply or aggre-
gate demand (also sometimes called “market supply” and “market demand”), which
describe the relationship between the price of a good (P) and either the quantity that
23
24 CHAPTER 2 SUPPLY AND DEMAND
the entire group of producers wants to produce (for aggregate supply) or the quantity
that the entire group of consumers wants to consume (for aggregate demand).
Two goods are substitutes if having more of one of them makes consumers want less
of the other. For example, we know that butter and margarine are substitutes because
if you have a lot of margarine, you don’t need any butter.
Two goods are complements if having more of one of them makes consumers want
more of the other. For example, we know that pencils and paper are complements
because having a bunch of pencils makes it more valuable to get paper to write on!
A market surplus (excess supply) or market shortage (excess demand) is when the
quantity supplied (Q5) doesn’t match the quantity demanded (QD) because the price
is too high, making people want to make more units than want to buy them (Q5 > QD,
a market surplus), or because the price is too low, making people want to buy more
units than anybody wants to make (QD > Q5, a market shortage).
A market equilibrium is when the price is at a level that sets the quantity supplied
(Q5) to equal the quantity demanded (QD). This is an equilibrium because at this
price, everyone who wants to buy a unit can find one to buy, and everyone who wants
to sell a unit is able to find a buyer. S o , nobody needs to change their behavior.
A price control is when the government passes a law requiring that a price must be
at least as high as a certain level (a price floor or price minimum, a floor on the pos-
sible prices, which will lead to a market surplus), or no higher than a certain level
(a price ceiling or price maximum, a ceiling on the possible prices, which will lead
to a market shortage).
How to Make a Supply Schedule

WHAT YOU NEED TO START: Information about how many units will be produced at dif-
ferent price levels.
STEP 1
WHAT YOU DO Make a list of all the relevant price levels mentioned.
If you are given the marginal cost each producer faces, those marginal
costs are the relevant price levels.
CHAPTER2 SUPPLYAND DEMAND 25
Example:
If it would cost Shawn $4 to make one unit and Sandy $5 to make one
unit, and if it would cost S u l a $ 3 to make one unit and $ 5 to make a
second unit, then the relevant prices are $3, $4, and $5.
WHY A supply schedule gives the relationship between price and quantity
supplied, so we need to know the list of prices that we have to think
about.
Suppliers will be willing to produce a unit if the price is at least enough

to cover their costs. S o those suppliers are looking for the price to be
equal to, or greater than, their costs.
STEP 2
WHAT YOU DO Make a table with two columns. The first column should have P as a
column header, and the second should have Q5. Use the prices from
Step 1 to fi l l i n the first column, i n order.
Example:
Using the relevant prices from Step 1, we can draw the table:
P Q5
$3
$4
$5
WHY The supply schedule is designed to show the quantity supplied at any
given price. And so, we need a table that can depict both price and Q5.
STEP 3
WHAT YOU DO Fill in the Q5 column by counting the total number of units that will
be produced at each price level. Don’t forget to count all units, not just
the new ones produced as the price increases. Q5 should always get
bigger as P does.
Then, you have a table that can be read in two ways. You can use the
table to ask, “at a given price, how many units will be produced?” or to
ask, “what does the price need to be to get suppliers to produce a given
number of units?”
Example:
Using Shawn, Sandy, and Sula from Step 1 , S u l a will make 1 unit at
P = $ 3 . At P = $4, Sula will still make her unit, and Shawn will add h i s
for 2 total units. At P = $5, Sula and Shawn will still make their units
from before. Sandy will add a third, and Sula will make another unit
for a total of Q5 2 4.
From this table, we know that if we wanted four units to be produced,

we’d have to offer a price of $5. We also know that if the price were
only $3, only one unit would be made.
P Q5
$3 1
$4 2
$5 4
WHY The supply schedule tracks the total number of units produced at dif-
ferent prices. So, to fill in the table, it’s necessary to count every unit
that will be produced at each price level. This includes units that also
would have been produced at lower price levels. A higher price won’t
make them stop producing! Suppliers like higher prices.
The information that the supply schedule can give us is about the rela-
tionship between price and quantity supplied. With the supply sched-
ule, if we’re given either price or quantity supplied, we can find out
the other one. This can go in either direction. Knowing the price can
help us figure out the quantity supplied at that price, and knowing the
quantity supplied can help us find out the price required to reach that
quantity supplied.
N
CHAPTER2 SUPPLYAND DEMAND 27
How to Draw a Supply Curve
H
WHAT YOU NEED TO START: Either a supply schedule (for Method 1, see 2 b to create
the supply schedule), a formula for a supply curve (for Method 2), or nothing at all to
draw a generic supply curve (for Method 3).
METHOD]
WHAT YOU DO Begin with a supply schedule. Draw a graph with P on the y-axis and
Q on the x-axis (you can remember which goes where by remember-
ing that “P” has a vertical line in it, and so goes by the vertical axis).
——————————
Draw each of the points on the supply schedule on the graph. Then,
connect them by drawing “stairs.” Draw a vertical line up from each
point until you hit the next price point, then a horizontal line right to
meet the next point.
Example:
———————
For the given supply schedule:
P Qs
$3 1
$4 2
$5 4
we can draw:
a +-—-----—-
Qua ntity
WHY A supply schedule gives the same information as a supply curve does.
Both give the number of units that will be produced at each price level.
And so, to make a supply curve, all we need to do is draw on the
proper points.
We connect the points by going up and then right because we don’t

add any more quantity until we hit a certain price. And so, at every
price between $ 3 and $4, for example, this market will only produce
1 unit. As soon as price hits $4, that’s when we add the second unit.
METHOD 2
WHAT YOU DO If you have a formula for a supply curve, you can simply plot the line
described by the formula on a graph with P on the y—axis and Q on the
x-axis. Since we have P on the y-axis, be sure that the formula has P
as a function of Q5 and not the other way around.
Example:
If we are given the supply curve Q5 = (1/2)P — 4, we first solve:
Q5 = (1/2)P — 4
Q5 + 4 = (l/2)P [Add 4 to each side]
2Q5 + 8 = P [Multiply each side by 2]
Then, we plot the inverse supply curve P = ZQS + 8, which is a straight

line with a y-intercept of 8 and a slope of 2.
Pricelk
Suppw
Quantity
WHY Supply and demand curves are drawn on graphs that have P on the
y-axis and Q on the x-axis. This may seem a little odd, since we think
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ABOUT THE AUTHOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

CHAPTER I COMPARATIVE ADVANTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . l

CHAPTER 2 SUPPLY AND DEMAND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2.9 How to Predict Shifts in Supply and Demand . . . . . . . . . . . . . . . . . 37

CHAPTER 4 MARGINAL VALUE AND MARGINAL COST . . . . . . . . . . . . . . . . . . . . . 79

CHAPTER 5 GOVERNMENT POLICY IN COMPETITIVE MARKETS . . . . . . . . . . . . Ill

CHAPTER 6 THE PRODUCTION PROCESS IN COMPETITIVE MARKETS. . . . . . I39

CHAPTER 7 MONOPOLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I67

CHAPTER 8 GAME THEORY AND OLIGOPOLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

CHAPTER 9 EXTERNALITIES AND PUBLIC GOODS . . . . . . . . . . . . . . . . . . . . . . . . 2| l

ANSWERS T0 ODD-NUMBERED QUESTIONS . . . . . . . . . . . . . . . . . 235

How Students Can Use the Book

I You can learn why those solutions work conceptually.

How Educators Can Use the Book

I Standard textbooks do their best work when they’re focusing on explaining

I A s anyone who has taught Principles of Microeconomics knows, there is

Dr. Nick Huntington-Klein is an Assistant Professor of Economics at California

A production possibility frontier (also known as a production possibility curve)

How to Calculate Comparative

and for activity 3 using the formula:

WHY Opportunity cost is what you give up in order to get something. If

what they gave up (CapacityB) divided by the number of units of A

How to Draw Production

Laii. How to Draw a Production Possibilities

In order to u s e our most efﬁcient resources ﬁrst, we have Andrea

l.l:.iii How to Draw a Production Possibrhties

How to Find Consumption

If the problem says something like “they want an equal number of

How to Shift 21 Production

WHY The production possibilities frontier describes the possible production

A change to just the production of Com will have a different effect on

I n a year, the country of Towlia can produce at most 40,000 d i s h towels or

In the shared production possibility frontier depicted in the following illlustra-

Which could explain a shift from PPFl to PPF2?

How to Make a Supply Schedule

Suppliers will be willing to produce a unit if the price is at least enough

From this table, we know that if we wanted four units to be produced,

How to Draw a Supply Curve

For the given supply schedule:

We connect the points by going up and then right because we don’t

Then, we plot the inverse supply curve P = ZQS + 8, which is a straight

Format in-18 à 3 fr. 50 le volume

ADOLPHE ADERER PIERRE GOURDON

Cette version numérisée reproduit dans

Creating the works from print editions not protected by U.S.