Unit 3: Scarcity, Work, & Choice Flashcards
Production Function
A graphical/mathematical expression describing amount of output by different combinations of inputs
Average Product
Total output divided by input
Marginal Product
The additional amount of output produced if input was increased by one unit (all other inputs constant)
Diminishing Returns
Addition of a unit of a factor of production results in a SMALLER INCREASE in output than the previous increase
Preference
Benefit/cost that we associate with any possible outcomes
Indifference Curve
A curve of points that indicates the utility a specific combination of goods provides to someone
Marginal Rate of Substitution
Trade-off that a person is willing to make between two goods
Aka the slope of the indifference curve
Opportunity Costs
When an action implies that you have to forego the next best alternative action, this is the net benefit of the foregone alternative
Economic Cost
Out of pocket cost of an action + the opportunity cost
Economic Rent
Payment or benefit received above what an individual would have received through the next best alternative
Feasible Frontier
Curve made of points that define the maximum feasible quantity of one good for a given quantity of the other
Marginal Rate of Transformation
Quantity of a good that must be sacrificed to gain an additional unit of another good
Aka slope of the feasible frontier
Constrained Choice Problem
How we can do the best for ourselves given the fact that we have preference/constraints and that the things we value are scarce
Budget Constraint
Equation that represents all combinations of goods and services that one can afford to buy
Income Effect
The effect that additional income would have if there were no changes in price or opportunity cost
