Market-dependent production set

Egbert, Henrik and Naqvi, Nadeem (2011): Market-dependent production set.

Abstract

A country’s production possibility frontier or PPF is defined as the boundary of its economy’s production set in the net output space for a given technology and fixed quantities of primary factors of production. In general equilibrium theory, exogenous changes in technology or primary-factor supplies alter equilibrium prices; however, government-policy induced domestic relative commodity price changes do not alter the shape of an economy’s production set. We show that, under international capital mobility, which is empirically significant, the shape of a country’s production set does, in fact, depend on market forces and this shape can be manipulated by government policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: general equilibrium; production possibility frontier; production set; international capital mobility; economic policy
• Subjects: D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D50 - General; A - General Economics and Teaching > A2 - Economic Education and Teaching of Economics > A20 - General; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E23 - Production; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; E - Macroeconomics and Monetary Economics > E0 - General > E00 - General

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