Week 4_ Unit 3 Part 2 SCARCITY, WORK, AND CHOICE Flashcards
1
Q
Consumption formula?
A
𝑐=𝑤(24−𝑡)
w= wage t= free time (hours)
This your budget constraint, it shows what you can afford to buy
2
Q
Overall effect formula?
A
Overall effect = Income effect + Substitution effect
3
Q
def of MRS and MRT?
A
MRS= choice MRT= limitation
4
Q
Income and substitution effects?
A
Income effect= working hours stay the same but wage increases, resulting in higher income
Substitution effect= wage increases but working hours decreases. Resulting in more free time but similar income
These effects increase feasible set and allows for us to reach a higher indifference curve
5
Q
Why are there differences cross country?
A
Differences in culture (norms)
Politics (legal limits on hours)
Social preferences (e.g. ‘Keeping up with the Joneses’)
