SUPA Economics

Describe intertemporal choice. Give an example.

It means across time. You have decide now what will give you more utility in the future. $100 now or $300 next year.

Define process of production.

transforming the inputs into an good, or service

Descibe how the utility maximizing decision rule changes as we relax the no scarcity assumption. Explain why this new rule is, given our assumptions, the only way one can maximize utility.

when scarcity is involved, one thing may have to be cut short, even if more utility could be gained, due to scarce time. thus, we must optimize our activities to obtain maximum utility. you can't achieve MU=0 for all, but you try to make them equal.

Desribe how a changing discount rate can affect one's choices. Give an example.

A bomb is coming within the next few hours, you completely discount the future.

Describe the challenge of intertemporal choice.

All choices have concequences across time. You have to decide now, not knowing how it will turn out in the future. You have to take the future and bring it to the present so you can compare the benefits and costs.

Explain the concept: allocation of a factor.

allocation of a factor refers to deciding what to do with somthing. a rocket scientist could dig ditches by hand. however, his human capital would be put to better use building rockets.

Define capital. Distinguish between physical and human capital. Give an example of each. Distinguish between production and financial capital.

Capital is a produced means of production. Physical capital -tools, machines Human capital - inside yourself, allows you to be more productive - education

Define discount rate. Describe what the discount rate measures. Comment on the following assertion: The "right" discount rate is 10%.

DIscount rate is the waiting premium you require to wait. $100 now or $150 later, discount rate is 50%. There is no 'right' discount rate. It varies from person to person.

Describe society's endowment. Explain the relationship between society's endowment and scarcity.

Endowment- all the natural and human resources from which all goods and services are produces. Endowment may not be fixed, but it is finite, so scarcity is an issue

Compare labor intensive and capital intensive techniques. Explain how a choice is made among techniques when technology offers an array of more labor or more capital intensive techniques.

Labor intensive means that a lot of labor (work) is needed, such as ditch digging. Capital intensive means a lot of capital (usually money or machines) is needed. The cheapest way is usually choosen.

Define marginal product. State the assumption of diminishing marginal product. Explain this assumption using an example.

Marginal Product is the additional output that comes from an additional unit of input. The assumption of diminishing marginal product is that the productivity will decrease in marginal productivity. Ex: Adding workers to a factory means you will produce more, but after you add so many people, each person that you add helps less than their predecessors.

Define marginal utility. State the assumption of diminishing marginal utility. Explain this assumption using an example.

Marginal utility is how much satifaction something brings at a particular time. utility from consuming a good ussually diminishes as more of the good is consumed. for example, the first gulp of water after a long walk yields many utils. the next gulp is less and so on until no utils are gained by drinking the water.

Specify the arrangement of these terms as they are used in our model: factors, allocated, process of production, techniques, technology, goods and services.

Once you allocate factors they are combined in a process of production. The way that goods and services are produced in these services depends on the technique. The techniques are all the possible ways of produsing goods and services and technology is a set of all the techniques

Define saving and investing. Identify, ceteris paribus, who you would expect to do more saving and investing: Someone with a high discount rate or someone with a low discount rate.

Saving- to put money in a static location for later use, to forgo using the resources Investing- to use saved resources in order to increase future productivity in hopes of increasing future utility. Ceteris paribus, someone with a low discount rate will save and invest as they are willing to wait

Define present value. Explain how we use this concept in our choice process.

The present value of the future utilities that are telescoped back into a single value now. Which means it is the present value that future utilities have. We compare the present value with the intertemporal choices and then make a rational choice.

Explain the concept of a constrained optimization problem. Identify the constrained optimization problem we all face.

constrained optimization refers to how people maximize utility in the face of scarcity. we are all faced with scarce time and resources. for example, we must choose between studying and playing due to scarce time.

Define optimize. Explain the concept: optimal allocation.

optimize is to do somthing to gain the most utility. optimal allocation refers to doing somthing more or less and substituting that time with another activitey in order to get the most utility.

Describe a bliss point.

the bliss point is when an individual has gained the maximum utility from a good or service. consuming more will resukt in negative utility. MU=0 for all

Define margin. Give an axample of a margin.

the last in a series, the edge. ex: a person will gain the last amount of utility out of their final gulp of water.