In the home equilibrium situation, the relative price of wheat (when wheat is on the horizontal axis) is the same as:
A) the relative price of cloth.
B) the slope of the PPF.
C) the marginal product of wheat.
D) the cost of labor to produce wheat.

Question

Quizplus · Accepted Answer

The relative price of wheat in a home equilibrium situation, when plotted on a graph with wheat on the horizontal axis, is represented by the slope of the Production Possibility Frontier (PPF). The PPF slope indicates the opportunity cost of producing one more unit of wheat in terms of the amount of cloth that must be given up, which is essentially the relative price of wheat in terms of cloth.

In the Home Equilibrium Situation, the Relative Price of Wheat