A One-Factor Economy The technology of Homes economy can be summarized by labor productivity in each industry, expressed in terms of unit labor requirements The unit labor requirement is the number of hours of labor required to produce one unit of output Denote with azw the unit labor requirement for wine(e.g. if aLw=2 then one needs 2 hours of labor to produce one gallon of wine) Denote with aLc the unit labor requirement for cheese(e.g. if aLc then one needs I hour of labor to produce a pound of cheese) The economy's total resources are defined as L, the total labor supply(e.g. if L=120, then this economy is endowed with 120 hours of labor or 120 workers Copyright C 2003 Pearson Education, Inc Slide 1-11
Copyright © 2003 Pearson Education, Inc. Slide 1-11 ▪ The technology of Home’s economy can be summarized by labor productivity in each industry, expressed in terms of unit labor requirements: • The unit labor requirement is the number of hours of labor required to produce one unit of output. – Denote with aLW the unit labor requirement for wine (e.g. if aLW = 2, then one needs 2 hours of labor to produce one gallon of wine). – Denote with aLC the unit labor requirement for cheese (e.g. if aLC = 1, then one needs 1 hour of labor to produce a pound of cheese). ▪ The economy’s total resources are defined as L, the total labor supply (e.g. if L = 120, then this economy is endowed with 120 hours of labor or 120 workers). A One-Factor Economy
A One-Factor Economy Production possibilities The production possibility frontier(PPF) of an economy shows the maximum amount of a goods(say wine)that can be produced for any given amount of another(say cheese), and vice versa. Or illustrates the different mixes of goods the economy can produce The PPF of our economy is given by the following equation lLcOc+ arROW=l From our previous example, we get Qc+2gw=120 Copyright C 2003 Pearson Education, Inc Slide 1-12
Copyright © 2003 Pearson Education, Inc. Slide 1-12 ▪ Production Possibilities • The production possibility frontier (PPF) of an economy shows the maximum amount of a goods (say wine) that can be produced for any given amount of another (say cheese), and vice versa. Or illustrates the different mixes of goods the economy can produce. • The PPF of our economy is given by the following equation: aLCQC + aLWQW = L (2-1) • From our previous example, we get: QC + 2QW = 120 A One-Factor Economy