Week 3_ Unit 3 SCARCITY, WORK, AND CHOICE

Question 1

Production functions?

Answer 1

how how inputs (e.g. labour) translate into outputs

e.g. goods and services), holding other factors constant (e.g. production environment

Question 2

What do production functions tell us?

Answer 2

1. Marginal product=
   Change in output per unit change in input (evaluated at a given point, holding other inputs constant)
2. Average product=
   Average output per unit of input

Question 3

What are indifference curves/MRS?

Answer 3

Indifference curves show
all combinations of goods that give
the same utility (satisfaction)

The marginal rate of substitution
(MRS) is the slope of the
indifference curve, and represents
the tradeoffs that an individual
faces

Question 4

What is opportunity cost?

Answer 4

The opportunity cost of an action is the net benefit of the

next best alternative action

Question 5

Feasible Frontier/MRT?

Answer 5

shows the
maximum output
that can be achieved with a
given amount of input

marginal rate of
transformation (MRT) is the
slope of the feasible frontier,
and represents the tradeoffs
that an individual faces

Question 6

Quick Summary?

Answer 6

Indifference curves represent preferences
• Feasible frontier represents choice constraints
• Utility-maximising choice where MRS = MRT