Chapter 3 - Constraints And Trade Offs

Question 1

Constrained Choice Problem

Answer 1

These problems provide a way to think rigorously about how we can do best for ourselves, given our preferences and constraints, and when the things we value are scarce.

Question 2

Scarcity

Answer 2

A good that is valued, and for which there is an opportunity cost of acquiring them.

Question 3

Opportunity Cost

Answer 3

The cost of the next best alternative.

Question 4

Marginal Product

Answer 4

At each point on the production function, the marginal product is the additional amount of output that could be produced if the input was increased by one unit, while holding others constrained.

Question 5

Indifference Curve

Answer 5

A curve the points of which indicate the combinations of goods that provide a given level of utility to the individual.

Question 6

MRS

Answer 6

The trade-off that a person is willing to make between two goods.

At any point, this is the slope of the indifference curve.

Question 7

MRT

Answer 7

The quantity of some food that must be sacrificed to acquire one additional unit of another good.

At any point, this is the slope of the feasible frontier.

Question 8

Feasible Set

Answer 8

All of the combinations of things under consideration that a decision-maker could choose given the economic, physical or other constraints to which he or she is subject.

Question 9

Budget Constraint

Answer 9

An equation of all combinations of goods and services that one could acquire that exactly exhaust Ines budgetary resources.

Question 10

Income Effect

Answer 10

The effect that the additional income would have if there were no change in the opportunity cost.

Question 11

Substitution Effect

Answer 11

The effect of the change in the opportunity cost, given the new level of utility.