【正文】 2020 Pearson Education, Inc. Chapter 16 85 Production Possibilities Frontier Clothing(units) Food (units) OF OC D ? MRT = 2 B ? MRT = 1 MRT 1 MRT 1 169。2020 Pearson Education, Inc. Chapter 16 83 Production Possibilities Frontier ?Marginal rate of transformation (MRT) of food for clothing is the magnitude of the slope of the frontier at each point ?Amount of one good that must be given up to produce one additional unit of a second good ?How much clothing must be given up to produce one additional unit of food ?As we increase the production of food by moving along the PPF, the MRT increases 169。2020 Pearson Education, Inc. Chapter 16 81 Production Possibilities Frontier Clothing(units) Food (units) ? Point A is inefficient ? Points B, C and D are efficient ? All points in triangle ABC pletely utilize capital and labor, but distortion in labor market leads to inefficient use OF OC D C B A 169。2020 Pearson Education, Inc. Chapter 16 79 Producer Equilibrium – Competitive Input Markets ?The MRTS is the slope of the isoquant, so petitive equilibrium exists only if: ?Slopes of the isoquants are equal to one another ?These also equal the ratio of the prices of two inputs ?Competitive equilibrium lies on the production contract curve, and the petitive equilibrium is efficient in production 169。2020 Pearson Education, Inc. Chapter 16 77 Producer Equilibrium – Competitive Input Markets ?We saw before that if producers minimize costs, they will choose inputs to the point where the ratio of the marginal products of the two inputs is equal to the ratio of input prices: rwMPMPKL ?169。2020 Pearson Education, Inc. 75 Production in an Edgeworth Box 50L 0C 0F 30K 50L 30K Capital in Food Production Capital in Clothing Production Labor in Food Production Labor in Clothing Production 5K 25K 15L 35L 10C 60F 50F 25C 30C C D A B Production Contract Curve 169。2020 Pearson Education, Inc. 73 Production in an Edgeworth Box 50L 0C 0F 30K 50L 30K Capital in Food Production Capital in Clothing Production Labor in Food Production Labor in Clothing Production 5K 25K 15L 35L Can move from A to B or C which increases efficiency. 10C 60F 50F 25C 30C C D A B Any place in shaded area will increase efficiency from allocation A. 169。2020 Pearson Education, Inc. Chapter 16 71 Production in an Edgeworth Box ?To find efficient production, must find different binations of inputs used to produce the two outputs ?An allocation of inputs is technically efficient if the output of one good cannot be increased without decreasing the output of another good 169。2020 Pearson Education, Inc. Chapter 16 69 Production in an Edgeworth Box ?Each point in the box represents the labor and capital inputs in the production of food and clothing ?Can use production isoquants to show levels of output produced with each bination of inputs ?3 isoquants representing 50, 60 and 80 units of food ?3 isoquants representing 10, 25 and 30 units of clothing 169。2020 Pearson Education, Inc. Chapter 16 67 Efficiency in Production ?Using the Edgeworth Box diagram, we can show efficient use of inputs in production ?Labor on horizontal axis ?Capital on vertical axis ?50 hours of labor and 30 hours of capital available ?Each origin is an output 169。2020 Pearson Education, Inc. Chapter 16 65 Equity and Perfect Competition ?Any equilibrium that is equitable can be achieved by redistributing resources and may be efficient ?Typical ways to redistribute goods, however, are costly ?Taxes lead to bad incentives ? Firms devote fewer resources to production in order to avoid taxes ? Encourage individuals to work less 169。2020 Pearson Education, Inc. Chapter 16 63 Equity and Perfect Competition ?A petitive equilibrium can occur at any point on the contract curve depending on the initial allocation ?Since not all petitive equilibriums are equitable, we rely on the government to help reach equity by redistributing ine ?Taxes ?Public services 169。2020 Pearson Education, Inc. Chapter 16 61 Social Welfare Functions ?An egalitarian view believes that goods should be equally shared by all individuals in society ?Could have situation where more productive people are rewarded, thereby producing more goods and then having more to reallocate to all of society 169。2020 Pearson Education, Inc. Chapter 16 59 Social Welfare Functions ?Each social welfare function is associated with a particular view of equity ?Some views of equity do not assign weights and cannot be represented by a welfare function ?Competitive market process is equitable because it rewards those who are most able and work hardest ?Believes petitive equilibrium would be most equitable 169。2020 Pearson Education, Inc. Chapter 16 57 The Utility Possibilities Frontier ?From previous example, can see that an inefficient allocation might be more equitable than an efficient one ?But how do we define an equitable allocation? ?It depends on what we believe equity to entail ?Requires interpersonal parisons of utility 169。2020 Pearson Education, Inc. Chapter 16 55 The Utility Possibilities Frontier James’ Utility Karen’s Utility E F G OK L OJ H OJ – James has zero utility OK – Karen has zero utility E, F, G – points on contract curve H – inefficient – can do better in shaded area L unobtainable 169。2020 Pearson Education, Inc. Chapter 16 53 Equity and Efficiency ?Although there are many efficient allocations, some may be more fair than others ?The difficult question is, what is the most equitable allocation? ?We can show that there is no reason to believe that efficient allocation from petitive markets will give an equi