Scarcity, work and choice Flashcards
scarcity d
a good that is valued, and for which there is an opportunity cost of acquiring more
average product d
total output divided by a selected input (average product per worker is total output divided by no. of workers)
marginal product d
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
the marginal product is the _____ of the _____
slope, tangent
diminishing marginal product d
property of some production function where each additional unit of input results in a smaller increment in total output than did the previous unit
preferences d
these determine the utility we associate with each possible outcome and provide an order of preference of all the outcomes
utility d
indicator of the value that one places on an outcome such that higher valued outcomes will be chosen over lower valued ones when both are feasible
indifference curve d
a curve the points of which indicate the combinations of goods that provide a given level of utility to the individual
what shape are indifference curves
downward sloping lines in the right corner of the diagram
which place on the graph gives maximum utility (indifference curves)
top right
what are the things we notice about indifference curves
downward sloping (sacrifice one for another),
higher curves correspond to higher utility,
they are usually smooth,
they do not cross,
as move to the right become flatter
marginal rate of substitution d
corresponds to the trade-off that a person is willing to make between two goods, at any point it is the slope of the indifference curve
why do indifference curves never cross
because that would mean all points on both curves give the same utility when this is not the case
opportunity cost d
when taking an action implies forgoing the opportunity of the next best alternative action, opportunity cost is the net benefit of the alternative
economic cost d
the out of pocket cost of an action, plus the opportunity cost
feasible frontier d
the feasible frontier is made up of points each of which indicates for a given feasible quantity of one good, the maximum feasible quantity of the other
where is the feasible set on the diagram
area to the left of the feasible frontier
feasible set d
all of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints to which he or she is subject
marginal rate of transformation d
the mrt is the quantity of some good that must be sacrificed to acquire one additional unit of another good, at any point it is the slope of the feasible frontier
alexei can ____ free time into a higher grade
transform
what is the difference between mrs and mrt
mrs measures trade-off the student is willing to make, mrt measures trade-off that the student is constrained to make by the feasible frontier
what point is Alexie’s optimal combination of grade and free time
point that the mrt is equal to the mrs
an improvement in technology shifts the production function _____
upwards
what is the slope of the budget constraint equal too
the wage
income effect d
the effect that the additional income would have if there were no change in the opportunity cost
what is the income effect if an increase in income doesn’t raise your choice of free tme
zero
can income effect be negative
for most goods will be positive or zero (income increased would not choose to have less of something you valued)
which way does the budget constraint move when given a wage rise
to the right (but still goes through 24 hours of free time on x-axis)
substitution effect d
the effect of the change in the opportunity cost, given the new level of utility
what are the two effects of a wage increase on the amount of time working
more income for every hour worked so sacrifice consumption for free time (income effect),
budget constraint is steeper cost of free time higher (substitution effect)
as wage rises, your feasible set _______
expands
which way does the income and substitution effect work on the budget constraint diagram
income effect right,
substitution effect left,
(x hours of free time, y consumption)
the income effect of a wage rise would cause you to take ____ free ____
more, time
what is the effect such that a rise in the opportunity cost of free time means an individual will choose less free time
substitution effect
what is the overall effect of a wage rise
depends on the sum of the income and substitution effects
the income effect makes workers want ____ free time, while the substitution effect provides an incentive to work _______ hours
more,
longer
what is the utility maximising point
where the feasible frontier is equal to the slope of the indifference curve (mrs=mrt)
why is the model of equating mrs to mrt unrealistic
because unlikely that calculations will be done,
rules of thumb,
employers often choose working hours,
legal limits on working time
