Summary Unit 3- Scarcity, work, and choice

Unit 3- Scarcity, work, and choice

Introduction
 Scarcity- must make decisions; limited means to meet objectives; trade-offs,
e.g. wage vs. leisure.
 Figure below shows the relationship between hours worked and average
incomes.




 Higher income countries seem to have lower working hours and more free
time- some may have similar free time but different levels of income.
3.1 Labour and production
 Assume that as number of hours worked increases, the amount of goods
produced also increases.
 Marginal product is the slope of the tangent at a given point.
 When marginal is less than average, it is diminishing as input increases.
 Marginal product is the rate of change.
3.2 Preferences
 Preferences are a description of the cost or benefit we associate with each
possible outcome.
 Utility is a numerical indicator of the value that one places on an outcome,
such that higher valued outcomes will be chosen over lower valued ones
when both are feasible.
 An indifference curve joins
together all of the combinations
that provide equal utility.
 Indifference curves slope
downwards due to trade-offs;
the combination that has more
of one good must have less of
the other good.
 Higher indifference curves
correspond to higher utility
levels.