Constructing the three conditions for economic efficiency in a 2x2x2 economy model. This clip combines the consumer sector with the producer sector. In doing this we include the PPF model that we discussed in first year economics. We show that the contract curve in the production sector represents the same thing as our old PPF. The we take the PPF as representative of the production sector and impose on it the consumer sector (i.e. Indifference Curves). Where the slope of the PPF is the same as the IC that touches it we derive the 3rd condition for efficiency in the whole economy that includes consumers and producers.
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