unit 3

Question 1

Constrained choice problem

Answer 1

how we can do the best for ourselves, given our preferences and constraints, when the things we value are scarce

Question 2

scarcity

Answer 2

a good that is valued, in which there is opportunity cost of having more

Question 3

opportunity cost

Answer 3

when taking an action implies of forgoing to the next best alternative. this is the net benefit of the foregone alternative

Question 4

marginal product

Answer 4

the additional amount of output produced if input increased by one unit, holding all inputs constant

Question 5

indifference curve

Answer 5

a curve showing the points of the combination of goods that provide a given level of utility.

Question 6

marginal rate of subsitiution (MRS)

Answer 6

the trade-off a person is willing to make between two goods. Indifference curve

Question 7

marginal rate of transformation (MRT)

Answer 7

the quantity of some good that must be sacrificed to acquire one additional unit of another good. Feasible frontier

Question 8

feasible set

Answer 8

All of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints that he faces

Question 9

budget constraint

Answer 9

An equation that represents all combinations of goods and services that one could acquire that exactly exhaust one’s budgetary resources.

Question 10

income effect

Answer 10

the effect of additional income if there was no change in price or opportunity cost

Question 11

substitution effect

Answer 11

the effect that is only due to changes in opportunity cost, given the new level of utility