Lecture 1: Introduction to Economics

Question 1

Define the Marginal Rate of Transformation

Answer 1

The MRT is the amount of one good we have to give up in order to have an extra unit of the other good.

Question 2

What does the PPC show?

Answer 2

The PPC shows us the trade-off that Society has to make between 2 goods.

Question 3

What does the slope of the indifference curve show?

Answer 3

The slope of the indifference curve shows us how much of one good the society is prepared to give up (trade off) in order to have an extra unit of the other good: The Marginal Rate of Substitution.

Question 4

Define the Marginal Rate of Substitution

Answer 4

The rate at which one factor can be substituted by another while holding the level of output constant

Question 5

MRS

Answer 5

Is the slope of the indifference curve. It shows us how much of one good a society is prepared to give up ( trade off) in order to have an extra unit of the other good.