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Isovalue lines

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In microeconomics, in a standard trade model with two products, an isovalue line is the vector of combinations for which the market value of total production is constant. The formula for isovalue line V is:

V = Q x P x + Q y P y {\displaystyle V=QxPx+QyPy}

in which:

Q is quantity

P is price

x and y are products.

For example: Assume an economy that only produces bread and wine and in which relative prices are fixed, say one bottle of wine equals the price of three breads. The isovalue line V (in a graph with bread as x and wine as y) slopes less than 45° downward. The exact slope is derived from the wine/bread price relation, in this case -1/3.

References

  1. Fernández, Èric Roca (2019-07-11). "The Standard Trade Model". Èric Roca Fernández. Retrieved 2024-11-27.
  2. "Econ 325 - The Standard Trade Model". qed.econ.queensu.ca. Retrieved 2024-11-27.


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