SCARCITY, WORK AND CHOICE UNIT 3

Question 1

Feasibility constraint

Answer 1

The set of allocations that satisfies all the constraints in an economic model.

Question 2

Constrained optimization problems:

Answer 2

The decision maker chooses the values of one or more variables to achieve an objective subject to a constraint that determines their feasible set

Question 3

Opportunity costs

Answer 3

describe the trade-offs in the presence of scarcity

Question 4

The marginal rate of substitution (MRS):

Answer 4

The trade-off that a person is willing to make between two goods to remain with the same utility. At any point, this is the slope of the indifference curve.

Question 5

The marginal rate of transformation(MRT):

Answer 5

The quantity of some goods that must be sacrificed to acquire one addict unit of another good. At any point, it is the slope of the feasible frontier.

Question 6

Equilibrium

Answer 6

MRS=MRT

Question 7

Constrained optimization problems:

Answer 7

A decision-maker chooses the values of one or more variables to achieve an objective subject to a constraint that determines their feasible set.

Question 8

the income effect

Answer 8

The exchange of consumption due only to changes in income

Question 9

substitution effect

Answer 9

Free time has become more expensive. The change in consumption due only to changes in prices

Question 10

Utility

Answer 10

A measure of a value that depends on a certain outcome

Question 11

Indifference curve

Answer 11

Collection of points bringing same utility to the consumer