Unit 3- Scarcity, Work and Choice

Question 1

Indifference curve definition:

Answer 1

A curve of the points which indicate the combination of goods that provide a given level of utility to the consumer

Question 2

Marginal rate of substitution (MRS) definition:

Answer 2

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

Question 3

Feasible frontier definition:

Answer 3

The curve made of points showing the maximum feasible quantity of one good, for a given quantity of another

Question 4

Marginal rate of substitution (MRS) definition:

Answer 4

The quantity of a good that must be sacrificed in order to get an additional unit of another good. At any point, it is the slope of the feasible frontier

Question 5

Income effect definition:

Answer 5

The effect that additional income would have if there was no change in price or opportunity cost

Question 6

Substitution effect definition:

Answer 6

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

Question 7

Conspicuous consumption definition:

Answer 7

The purchase of goods or services to publicly display someone’s social or economic status