UCL ECON 100% PASSED
economic rent
A payment or other benefit received above and beyond what the individual would have received in his
or her next best alternative (or reservation option)
isocost line
A line that represents all combinations that cost a given total amount
cost of production equation
c = (wL) + (pR)
isocost line slope
- (w/p)
Diagram: Production Function-diminishing average product of labour
Malthus argument as diagram
Malthusian problem
His model does not take account of the possibility a persistent positive technology shock that may offset
the diminishing average product of labour
(There are only 2 goods in the economy) What happens if the substitution effect is bigger than income
effect, and if the price of good 1 decreases
the consumption of good 2 decreases
Is the income effect positive or negative on consumption
, Positive, Substitution effect is negative
relative price
The price of one good or service compared to another (usually expressed as a ratio)
relative price of labour
slope of the isocost line (-w/p)
marginal product
The additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
-> slope of production function,
if y=f(h) its dy/dh
Average product of labour
Divide production function by units
e.g. y=f(h), APL= f(h)/h
indifference cure
A curve of the points which indicate the combinations of goods that provide a given level of utility to the
individual
-> slope downwards due to trade offs, slope=MRS
-> don't cross
Marginal Rate of Substitution (MRS)
the rate at which a consumer would be willing to trade off one good for another
e.g. U(l,y)=c
-> MRS= dU/dl / dU/dy
Marginal rate of transformation
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.
budget constraint
An equation that represents all combinations of goods and services that one could acquire that exactly
exhaust one's budgetary resources.
income effect
economic rent
A payment or other benefit received above and beyond what the individual would have received in his
or her next best alternative (or reservation option)
isocost line
A line that represents all combinations that cost a given total amount
cost of production equation
c = (wL) + (pR)
isocost line slope
- (w/p)
Diagram: Production Function-diminishing average product of labour
Malthus argument as diagram
Malthusian problem
His model does not take account of the possibility a persistent positive technology shock that may offset
the diminishing average product of labour
(There are only 2 goods in the economy) What happens if the substitution effect is bigger than income
effect, and if the price of good 1 decreases
the consumption of good 2 decreases
Is the income effect positive or negative on consumption
, Positive, Substitution effect is negative
relative price
The price of one good or service compared to another (usually expressed as a ratio)
relative price of labour
slope of the isocost line (-w/p)
marginal product
The additional output that can be produced by adding one more unit of a specific input, ceteris paribus.
-> slope of production function,
if y=f(h) its dy/dh
Average product of labour
Divide production function by units
e.g. y=f(h), APL= f(h)/h
indifference cure
A curve of the points which indicate the combinations of goods that provide a given level of utility to the
individual
-> slope downwards due to trade offs, slope=MRS
-> don't cross
Marginal Rate of Substitution (MRS)
the rate at which a consumer would be willing to trade off one good for another
e.g. U(l,y)=c
-> MRS= dU/dl / dU/dy
Marginal rate of transformation
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.
budget constraint
An equation that represents all combinations of goods and services that one could acquire that exactly
exhaust one's budgetary resources.
income effect
