Scarcity, work and choice

Question 1

scarcity d

Answer 1

a good that is valued, and for which there is an opportunity cost of acquiring more

Question 2

average product d

Answer 2

total output divided by a selected input (average product per worker is total output divided by no. of workers)

Question 3

marginal product d

Answer 3

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

Question 4

the marginal product is the _____ of the _____

Answer 4

slope, tangent

Question 5

diminishing marginal product d

Answer 5

property of some production function where each additional unit of input results in a smaller increment in total output than did the previous unit

Question 6

preferences d

Answer 6

these determine the utility we associate with each possible outcome and provide an order of preference of all the outcomes

Question 7

utility d

Answer 7

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

Question 8

indifference curve d

Answer 8

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

Question 9

what shape are indifference curves

Answer 9

downward sloping lines in the right corner of the diagram

Question 10

which place on the graph gives maximum utility (indifference curves)

Answer 10

top right

Question 11

what are the things we notice about indifference curves

Answer 11

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

Question 12

marginal rate of substitution d

Answer 12

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

Question 13

why do indifference curves never cross

Answer 13

because that would mean all points on both curves give the same utility when this is not the case

Question 14

opportunity cost d

Answer 14

when taking an action implies forgoing the opportunity of the next best alternative action, opportunity cost is the net benefit of the alternative

Question 15

economic cost d

Answer 15

the out of pocket cost of an action, plus the opportunity cost

Question 16

feasible frontier d

Answer 16

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

Question 17

where is the feasible set on the diagram

Answer 17

area to the left of the feasible frontier

Question 18

feasible set d

Answer 18

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

Question 19

marginal rate of transformation d

Answer 19

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

Question 20

alexei can ____ free time into a higher grade

Answer 20

transform

Question 21

what is the difference between mrs and mrt

Answer 21

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

Question 22

what point is Alexie’s optimal combination of grade and free time

Answer 22

point that the mrt is equal to the mrs

Question 23

an improvement in technology shifts the production function _____

Answer 23

upwards

Question 24

what is the slope of the budget constraint equal too

Answer 24

the wage

Question 25

income effect d

Answer 25

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

Question 26

what is the income effect if an increase in income doesn’t raise your choice of free tme

Answer 26

zero

Question 27

can income effect be negative

Answer 27

for most goods will be positive or zero (income increased would not choose to have less of something you valued)

Question 28

which way does the budget constraint move when given a wage rise

Answer 28

to the right (but still goes through 24 hours of free time on x-axis)

Question 29

substitution effect d

Answer 29

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

Question 30

what are the two effects of a wage increase on the amount of time working

Answer 30

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)

Question 31

as wage rises, your feasible set _______

Answer 31

expands

Question 32

which way does the income and substitution effect work on the budget constraint diagram

Answer 32

income effect right,
substitution effect left,
(x hours of free time, y consumption)

Question 33

the income effect of a wage rise would cause you to take ____ free ____

Answer 33

more, time

Question 34

what is the effect such that a rise in the opportunity cost of free time means an individual will choose less free time

Answer 34

substitution effect

Question 35

what is the overall effect of a wage rise

Answer 35

depends on the sum of the income and substitution effects

Question 36

the income effect makes workers want ____ free time, while the substitution effect provides an incentive to work _______ hours

Answer 36

more,

longer

Question 37

what is the utility maximising point

Answer 37

where the feasible frontier is equal to the slope of the indifference curve (mrs=mrt)

Question 38

why is the model of equating mrs to mrt unrealistic

Answer 38

because unlikely that calculations will be done,
rules of thumb,
employers often choose working hours,
legal limits on working time