Econ Unit 3

Question 1

Production function

Answer 1

the amount of output that can be produced by any given amount or combination of input(s); describes differing technologies capable of producing the same thing

Question 2

Average product

Answer 2

total output divided by a particular input (usually y/x)

Question 3

Marginal product

Answer 3

• The additional amount of output that is produced if a particular input was increased by one unit
• Corresponds to the slope of the production function
• The rate at which the grade increases, per hour of additional study (slope of the tangent)

Question 4

Preferences

Answer 4

A description of the benefit or cost we associate with each possible outcome

Question 5

Indifference curve

Answer 5

• Joins together all of the combinations that provide equal utility or satisfaction
• Slope downward due to to trade-offs
• Higher indifference curves correspond to higher utility levels
• Indifference curves are usually smooth and do not cross
• As you move to the right on an indifference curve, it becomes flatter

Question 6

Marginal rate of substitution (MRS)

Answer 6

• A tradeoff between that a person is willing to make between two goods; at any point, this is the slope of the indifference curve
• The indifference gets flatter if you increase the the amount of free time, and steeper if you increase the grade
• As we move up the vertical line, the indifference curves are steeper; the MRS increases

Question 7

Opportunity cost

Answer 7

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

Question 8

Economic rent

Answer 8

enjoyment minus economic cost

Question 9

Feasible frontier

Answer 9

the highest grade he can achieve given the amount of free time he takes

Question 10

Marginal rate of transformation

Answer 10

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

Question 11

Constrained choice problem

Answer 11

• How we can do the best for ourselves, given our preferences and constraints, and when the things we value are scarce
• The solution in these types of problems is the individual’s optimal choice

Question 12

Income effect

Answer 12

the effect that the additional income would have if there were no change in the opportunity cost (bc the budget constraints shift outwards)

Question 13

Substitution effect

Answer 13

the effect of the change in the opportunity cost, given the new level of utility (bc the slope of the budget constraint, the MRT, rises)