Isovalue lines
Jump to navigation
Jump to search
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.[1][2] The formula for isovalue line V is:
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.