ECON 3 Flashcards
(12 cards)
State the three conditions needed for preferences to be represented by a utility function.
Complete, transitive, and continuous
What is the marginal rate of substitution (MRS)? What does it tell us?
The slope of the indifference curve, it tells us the trade-offs an individual is willing to make
What is the key property linking the MRT and the MRT at a utility maximizing choice?
The key property linking MRT and MRS at a utility maximizing choice, is that MRT = MRS. This is when the consumer’s willingness to trade between goods also matches the production or opportunity costs of that good
Briefly describe the impact of technological change on the feasible frontier.
What are positional goods? Give 2 examples of positional goods.
Goods where value comes not only from usefulness, but from prestige or status
ie designer clothing, luxury cars
What is conspicuous consumption?
The purchase of goods or services to public display ones wealth or social standing
Briefly define “institutions” and give two examples.
The formal and informal rules that govern or influence human interaction/behavior in society.
Law system - set of laws and regulation that govern society
Education system - provide education to sculpt knowledge and behavior
Briefly explain the difference between institutions and organizations
Institutions are the overarching sets of laws and norms that regulate society. A organization is more focused on a specific goal and operates within an institution
ie a high school is an organization within the education system (institution)
Definition of “economic rent”?
Economic rent is the extra money made from a resource, that goes above what is needed to maintain that resource in good condition
Definition and interpretation of the Gini coefficient. Know how to calculate it.
Is a measure of wealth inequality. Calculated as the ratio area between the line of perfect equality and the Lorenz curve (A), to the total area under the line of equality (A+B). 0 = equal distribution, 1 = unequal distribution.
Gini Coefficient = A / (A + B)
Definition of the Lorenz curve. Know how to construct it.
The Lorenz Curve is a graphical representation of the distribution of income or wealth in a population, ordered from poorest to richest. It shows the cumulative percentage of total income or wealth received by the cumulative percentage of the population, and is plotted against a line of perfect equality.
Give three examples of policies that can reduce income inequality in the US.
Increase minimum wage, increase earned income tax, make the tax code more progressive
