Unit 3

Question 1

Production function

Answer 1

How inputs turn into outputs whilst holding other factors constant

Question 2

Marginal product

Answer 2

Change in output per unit change in input

Question 3

Diminishing MP

Answer 3

Studying becomes less effective the more you study

Question 4

Diminishing MRS

Answer 4

To keep utility constant one good must be sacrificed in ordered to increase quantity of other goods

Question 5

Indifference curve

Answer 5

All combinations of goods that give same utility

Question 6

MRS =

Answer 6

Slope of indifference curve

Question 7

Opportunity cost

Answer 7

Net benefit of the next best alternative action

Question 8

Economic cost =

Answer 8

Monetary cost plus opportunity cost

Question 9

Economic rent =

Answer 9

Enjoyment of ticket - economic cost

Question 10

MRT=

Answer 10

Slope of feasible frontier

Represents trade off individual faces

Question 11

Feasible frontier

Answer 11

Max output that can be achieved with given amount off input

Question 12

Optimal decision

Answer 12

MRS=MRT

Question 13

Budget constraints are example of

Answer 13

Feasible frontier

Question 14

Income effect

Answer 14

Change in optimal choice when income changes - keeping slope of budget constraint fixed

Question 15

Substitution effect

Answer 15

Change in optimal choice when opportunity cost changes at new utility level

Question 16

Example of income and substitution effect when income increases

Answer 16

Wage increases so incentives to work less hours = income effect

But increase wage also increases opportunity cost of free time = incentivised to work more - substitution effect