Microeconomics for International Trade Theory. ECON0301 January 2011. Basic Trade Model. General equilibrium multiple agents (firms and consumers) all optimizing The aggregation problem One shot long run income=expenditure => balance of trade Market structure
Bending toward the origin
Optimal input mix to produce Q=10
The min. costs to produce $1 worth of a good are exactly $1.
Given output and input prices, we can determine the optimal mix of inputs
Or, given output price and K/L ratio, we can determine the relative input prices