3 - Scarcity, work and choice Flashcards Preview

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Flashcards in 3 - Scarcity, work and choice Deck (11)
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1
Q

Constrained choice problem

A

This problem is about how we can do the best for ourselves, given our preferences and constraints, and when the things we value are scarce.

2
Q

Scarcity

A

A good that is valued, and for which there is an opportunity cost of acquiring more.

3
Q

Opportunity cost

A

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

4
Q

Marginal product

A

The additional amount of output that is produced if a particular input was increased by one unit, while holding all other inputs constant.

5
Q

Indifference curve

A

A curve of the points which indicate the combinations of goods that provide a given level of utility to the individual.

6
Q

Marginal rate of substitution (MRS)

A

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

7
Q

Marginal rate of transformation (MRT)

A

The quantity of some good that must be sacrificed to acquire one additional unit of another good. At any point, it is the slope of the feasible frontier.

8
Q

Feasible set

A

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.

9
Q

Budget constraint

A

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

10
Q

Income effect

A

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

11
Q

Substitution effect

A

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