Scarcity, Work and Choice Flashcards
What is a production function ?
A production function is graphical or mathematical expression that describes the amount of output that can be produced by any given combination of inputs. It describes different technologies being capable of producing the same thing.
What is preference?
Preference is a benefit or a cost we associate with each possible outcome.
What is utility
Utility is a numerical indicator that is places a value on a given outcome. Higher utility outcomes will be chosen over lower utility outcomes. As long as they are feasible.
What does an indifference curve show?
Indifferent curves show combinations of goods that provide a level of utility to an individual.
Characteristics of Indifference curves
They are smooth - Hence small changes in the amount of goods to lead to large changes in utility
- Indifference curves do not cross.
- As you move to the right, indifferent curves become flatter.
What is opportunity cost?
Opportunity cost describes how taking an action implies forgoing the next best alternative. It is the benefit gained from the forgone alternative.
What is Economic Cost?
It is the out of pocket cost + the opportunity cost. This is different from an accountant who only looks at the out of pocket price,
What is economic rent in this Unit?
The benefit or payment above and beyond the next best alternative or you can call the next best alternative the reservation option.
What does it mean to be inside the feasible frontier or outside.
Outside the feasible frontier means that the point is infeasible and inside it means that a resource is being thrown away, hence they are working inefficiently.
What does the slope of the feasible curve show?
It is the marginal rate of transformation. The is the rate at which a person can transform one good to another.
What is marginal rate of substitution?
When do constrained choice optimisation reach a solution.
When the MRT=MRS. At this point the Rate at which a person is constrained to transform A to B is equal to the rate at which that same person is willing to transform A to B.
What does technological improvements to do production functions? And show the effects on a graph.
Technological improvements shift production functions up. Leisure time can hence increase because it increased the output that can be gained from the same work time.
Technological Improvement and Standards of living
Technological Improvement increase standards of living because it shifts up the production function. By shifting up the production function it means that for the same amount of work time, a greater level of output will be achieved. This hence means that workers essentially can have more free time. If he chooses. Additionally, it also means that the feasible frontier has expanded. So the amount of combinations of free time and work hence increased. This allows people (workers) to have a greater choice of wage and free time and hence improve living standards.
Is the model realistic?
You can choose how long you want to work
You can’t choose how long you want to work
However, the unrealistic nature of the model is an intended feature.
