Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

rate of transformation of X for Y (MRT
XY
). This is given by the 
absolute value of the slope of the PPF at that point. For example, at 
1
3
(
,
)
'
J X Y
T
2
2
(
,
)
'
M X Y
3
1
(
,
)
'
N X Y
'
R
T

---

point M on PPF TT in figure 3.3, MRT
XY 
= 3/2 (the absolute value 
of the slope of the tangent to the PPF at point M ). 
5.6 SUMMARY 
 
1. An equilibrium is said to exist when the demand and supply 
curves equals at a positive price. 
2. Partial equilibrium analysis studies the behaviour of individual 
decision-making units and individual market, viewed in isolation. 
General equilibrium analysis studies the interdependence that 
exists among all markets in the economy.
3. A simple economy of two individuals (A and B), two 
commodities (X and Y), and two inputs (L and K) is in general 
equilibrium of exchange when the economy is on its contract 
curve for exchange. This is the locus of tangency points of the 
indifference curves (at which the MRS
XY
are equal) for the two 
individuals. The economy is in general equilibrium of production 
when it is on its production contract curve. This is the locus of 
the tangency points of the iso-quants (at which MRTS
LK
are 
equal) for the two commodities. By mapping or transferring the 
production contract curve from input to output space, we derive 
the corresponding production-possibilities frontier.