ECON0002- chapter 3- Scarcity, work, and choice
Why is MP always below AP? use studying hours and final grade model
As MP is diminishing, each hour is less productive than the ones that came before. This implied that the AP is also diminishing as each additional hour of study per day lower the AP of all his study time .
How are AP and MP related at each given point?
At each point the MP is always lower than the AP
Given your budget constraint, at which point will you choose to work?
At the point where your MRS ( The rate at which you are willing to swap consumption for time) is equal to MRT (wage) MRT=MRS=wage *extra that's in other flashcard* MRS is the slope of indifference curve. MRT is the slope of feasible frontier
Why is decision making under scarcity a common problem?
Because we usually have limited means available to meet our objectives
What is the substitution effect?
The effect that is only due to changes in the price or opportunity cost, given the new level of utility.
What is the income effect?
The effect that the additional income would have if there were no change in the price or opportunity cost.
What feature of the production function indicates a diminishing MP?
The fact that the production function is getting flatter. The function has diminishing marginal product so it's shape is concave
What is the relationship between the production function and the feasible frontier?
The feasible frontier , is a mirror image of the production function.
What is the area under the budget constraint?
The feasible set. The feasible set also includes the constraint
How do economists measur labour?
The number of hours worked by individuals engaged in production. They assume that as the number of hours worked increases, the amount of goods produced also increases.
What will happen for A if MRS is greater than MRT?
The number of points he is willing to trade for an hour if free time is less than the opportunity cost of an extra hour do he prefers to decrease his free time.
What does the slope of the feasible frontier represent?
The opportunity cost of the good on the x-axis. The marginal rate of transformation (MRT) In the case of A, the opportunity cost of free time.
What is economic cost?
The out-of-pocket cost of an action, plus the opportunity cost. *extra*Out-of-pocket cost is the money you actually pay
What does it mean if one indifference curve is steeper than another at a point? using our model of free time and consumption
The person with the steeper indifference curve is more willing to give up more units of consumption for an hour of free time (greater MRS) than the other.
What is the marginal rate of transformation (MRT)?
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. It is also equal to the marginal product of labour
How can the substitution effect be shown on a diagram?
The rising opportunity cost makes the higher constrains steeper which reduces the amount of free time you will take.
How can you calculate average product from a production function?
The slope of a straight line from the origin to that point on the production function.
What idea does the substitution effect capture?
The substitution effect captured the idea that when a good becomes more expensive relative to another good, you choose to substitute some other good for ir. It is the effect that a change in the opportunity cost would have on its own, for a given utility level
What does the overall effect of a wage rise depend on?
The sum of the income and substitution effects. If the substitution effect is greater then the higher wage will mean you take less free time If the income effect is larger then the higher wage will mean you take more free time.
What is the marginal rate of substitution?
The trade-off that a person is willing to make between 2 goods. At any point, this is the slope of the indifference curve.
What happened to the working hours of British worked during the Industrial Revolution?
Wages began to rise and working time rise too: to 318 days in a year in 1870
Do we assume the income effect to be positive or negative? Why?
We assume the income effect will either be positive or 0, but not negative; If your income increased, you wouldn't choose to have less of something that you valued.
Did Fogel overstate the future decline of working hours?
We do no know yet . But he is right that one of the great changes brought about by the technological revolution is the vastly reduced role of work in the life of an average person.
What do we need to describe which options are preferred?
We don't need to know the exact utility of eac option; We only need to know which combinations provide more or less utility than others.
When is the income effect positive?
When extra income increases your choice of free time
Why is opportunity cost?
When taking an action implies forgoing the next best alternative action, this is the net benefit of the foregone alternative.
When do you receive an economic rent?
When you take an action that results in a benefit greater than the economic cost (the sum of our-of-pocket and opportunity costs)
When are opportunity costs relevant in economics?
Whenever we study individuals choosing between alternative and mutually exclusive courses of action. *extra* not doing action B becomes a cost of doing A
What is the daily budget constraint equation?
c = w (24-t) c-consumption w-wage t-hours of free times
What are the 2 effects of a wage increase?
*More income for every hour worked*- For each level of free time you can have more consumption, and your MRS is higher- You are now more willing to sacrifice consumption for extra free time. This is the income effect we have already seen. You respond to additional income by taking more free time as well as increasing consumption. *The budget constraint is steeper*- The opportunity cost of free time is now higher. The MRT has increased This means you have more incentive to work- to decrease your free time. This is called the substitution effect.
What is the MP for A after 15hrs?
0 Studying more will not improve his grade.
What does the production function in fig 3.5 show?
A can achieve a higher grade by studying more, so the curve slopes upward. But with a decreasing gradient. At 15 hrs of work per day he gets the highest grade he is capable of, which is 90%. Any time spent studying vetoing this doesn't affect his exam result (he will be so tired that studying more each day will not achieve anything), and the curve becomes flat.
What is an indifference curve?
A curve of the points which indicate the combinations of goods that provide a given level of utility to the individual.
How is our model of A a constrained choice problem?
A decision maker (A) pursues an objective (utility maximisation in this case) subject to a constraint (his feasible frontier)
What are preferences?
A description of the benefit or cost ee associate with each possible outcome
What is a concave function?
A function of 2 variables for which the line segment between any 2 points on the function lies entirely below the curve representing the function. (The function is convex when the line segment lies above the function)
What are consumption goods?
A good or service that satisfies the needs of consumers over a short period
What is a production function?
A graphical or mathematical expression describing the amount of output that can be produced by any given amount or combination of input(s). The function describes differing technologies capable of producing the same thing.
What can we think of the combination of free time and grain as for Angela?
A measure of her standard of living
What is utility?
A numerical indicator of the value on that one places on an outcome, such that higher valued outcomes will be chosen over lower valued ones when both are feasible.
Why is economic rent?
A payment or other benefit received above and beyond what the dividing would've received in his or her next best alternative (reservation option)
Where will the optimal choice be for a person in a constrained optimisation problem assuming utility maximisation is the goal?
A point of the feasible frontier where MRT=MRS
Who usually chooses working hours, employees or employers?
A second unrealistic aspect of the model is that employers typically choose working hours not individual workers, and employers often impose a longer working day than workers prefer.
How can the income effect be shown on a diagram?
A shift of the feasible frontier that would get you to the new indifference curve without a change in opportunity cost. SEE FIG 3.19b NOW. Section 3.7
What are diminishing returns?
A situation in which the use of an additional unit of a factor of production results in a smaller increase in output than the previous increase.
What will a technological improvement do for Angela's grain production?
A technological improvement , such as seeds with a higher yield, or better equipment that makes harvesting quicker, will increase the amount of grain produced in a given number of hours.
What is the feasible set?
All of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints that he faces. Can be shown on a diagram by the area inside the feasible frontier and the feasible frontier itself.
What do changes in working hours over time and differences between workers reflect?
Although individual workers often have little freedom to choose their hours, it may nevertheless be the case that changes in working hours over time, and differences between countries, partially reflect the preferences of workers.
What does fig 3.20 show?
An application to the history of the model illustrated in 3.19b. The slopes of the budget constraints are the real wages in 1900 and 2013. The feasible sets are shown. We then guess the indifference curves.
What is a budget constraint?
An equation that represents all combinations of goods and services that one could acquire that exactly exhaust one's budgetary resources. *extra but remember* It shows the maximum amount of consumption you can have for each level of free time.
What does the diminishing marginal returns tell us about the product of an additional unit of input when u already have a lot of that input?
An extra unit of an input when you don't have a lot of it already helps a lot but if you already have a lot of it, adding more of it won't help much.
We now look an Angela (AN) who is a self-sufficient farmer who chooses how many hours to work. We assume that she doesn't sell her grain and if she produces too little she will starve. What stops her from producing the most grain possible?
Angela also values free time- she gets utility from both free time and consuming grain. So her choice of free time and grain consumption is constrained- producing an hour of grain takes labour time, and each hour of labour means that Angela forgoes an hour of free time. The hour of free time sacrifices is the opportunity cost of the grain produced. She faces a problem of scarcity: She has to make a choice between her consumption of grain and her consumption of free time.
Do actual people use MRS and MRT when making decisions under constraints?
Billions of people organise their working lives without knowing anything about MRS and MRT (if they did make decisions that way, perhaps we would have to subtract the hours they would spend making calculations). And if they did make their choice using mathematics, most of us can't leave work whenever we want.
Have people used economic progress as a way to consume more goods or enjoy more free time?
Both Americans in the 20th century increased their annual income by 4x but they had a smaller increase of slightly less than 1/5th of free time (the % increase in free time would be higher if we didn't include sleep, but it would still be small relative to the increase in earnings)
What combinations are infeasible?
Combinations outside the feasible frontier are said to be infeasible given the constraints.
What does fig 3.2 do?
Fig 3.2 illustrates the wide disparities in free time and income between countries in 2013. Here we calculated free time by subtracting average annual working hours by the number of hours in a year. Higher income countries tend to have lower working hours and more free time but there are also some differences between them. e.g. Holland and the US have similar levels of income but dutch workers have more free time. and the US and Turkey have similar amounts of free time but large difference in income.
How do economists model decision making under scarcity?
First by defining all the feasible actions, then evaluating which one of these actions is the best, given the objectives
What can we assume about A's preferences?
For a given grade, he prefers a combination with more free time to one with less free time. If 2 combinations both have the same amount of free time he prefers the one with a higher grade.
Why are free time and points scarce for A? Can be generalised for any 2 goods
Free time and grades are goods- A valued both of them Free time and grades have an opportunity cost- More of one good means less if the other.
What is used to measure income (in fig 3.1)?
GDP per capita in US dollars. This isn't the same as average earnings, but it gives us a useful indication of average income for the purposes of comparison across countries and through time.
Why does A face a trade off?
He cares about both his final grade and free time. But to get a higher final grade he will get less free time and vice versa.
What does it mean if A is indifferent between 2 outcomes?
He would feel equally satisfied with either outcome. We say that these 2 outcomes would give A the same utility.
What did Robert Fogel do?
He's an economic historian that estimated total working time, including travel to and from work and housework, in the past. He made projections for the year 2040, defining what he called discretionary time as 24 hours a day minus the amount we need for biological maintenance (sleeping, eating and personal hygiene). He calculated leisure as discretionary time minus working time. In 1880 he estimated that lifetime leisure time was just a quarter of lifetime work hours. In 1995 leisure time exceeded working time over a persons life. He predicted that lifetime leisure would be 3x lifetime working hours by 2040
What will determine how many hours A choses to study for give his production function?
His preferences
When will A maximise his utility given his indifference curve and feasible frontier? or anyone in a constrained choice problem
His utility will be maximised at the point where his indifference curve is tangent to the feasible frontier. MRS =MRT Maximum utility is maximised where 2 trade-offs balance
What choice do students make every day?
How many hours to spend studying
What factors influence a students choice of how many hours they spend studying?
How much you enjoy your work, How difficult you find it How much work your friends do etc Perhaps some of the motivation to devote time studying comes from your belief that the more time you spend studying, the higher the grade you will be able to obtain at the end of the course.
How have working hours varies since 1870?
I'm some places people have carried on working just as hard as before but consumed more, While in other countries people have more free time now.
Give an example of how a point inside the feasible frontier could be achieved by A?
If A stops writing before the end of the exam for no reason If A was to sit in the library and do nothing, A is taking less free time than i'd available to him:
What will happen for A if MRT is greater than MRS?
If MRS (the number of points he is willing to trade for an extra hour of free time) is greater than MRT (the opportunity cost of an extra hour), he prefers to increase his free time (on x-axis)
How do changes in working hours, and differences between countries partly reflect the preferences of workers?
If many individual workers in a democracy wish to lower their hours, they may 'choose' this indirectly as voters, if not individually as workers. Or they may bargain as members of a trade union for contracts requiring employers to pay higher overtime rates for longer hours. This explanation stresses culture (meaning changes in preferences of differences in preferences among countries) and politics (meaning differences in laws, or trade union strength and objectives). They certainly help explain differences in working hours between countries as northern European countries highly valued vacation time while south Korea is known for the long hours that employees out in.
What can workers who are more productive do?
If they have sufficient bargaining power, they can increase their wages. This model then suggests that , if the wages of workers do increase, the technological progress that caused the increase in wages will also bring about a change in the amount of time that employees wish to spend working, depending on which effect, income or substitution, dominates the other.
How can economic theory help to explain and sometimes even predict what people do even though people aren't performing the mathematical calculations that economists make in their models?
If we see a person regularly choosing to go to the library after lectures instead of going out, or not putting in much work on their farm, or asking for longer shifts after a pay rise, we do not need to suppose the person has done the calculations we set out. If the person later regretted the choice, the next time they nigh go out for a bit, or work harder on the farm, or cut their hours back. Eventually we could speculate they might end up with a decision on work time that is close to the result of our calculations.
What happens to the indifference curves if you move along a horizontal line with a given amount of grade points? as shown by fig3.7 using A's model
If you move along the horizontal line at a fixed grade point, the MRS becomes lower at each indifference curve with a greater utility value. As free time becomes more plentiful, A is less and less willing to give up grade points for more time.
What happens to the indifference curves if you move up a vertical line with a given amount of free hours? as shown by fig3.7 using A's model
If you move up the vertical line through, 15 hrs, the indifference curves get steeper (indifference curves with higher utility are steeper for a given amount of free time), i.e. the MRS increases.: This shows A is willing to give up more grade points for an additional hour when she has a lot of points compared to when she has a few (e.g. as she could be in danger of failing the course)
How can our model explain the economy in britain before 1870 where working hours and wages rose?
Income effect- At the relatively low level of consumption before 1870, workers' willingness to substitute free time for goods did not increase much when rising wages made higher consumption possible. Substitution effect- But they were more productive and paid more, so each hour of work brought more rewards that before in the form of goods, increasing the incentive to work longer hours. Substitution effect dominated- Therefore before 1879 the negative substitution effect (free time falls) was logger than the positive income effect (free time rises), so work hours rose.
How can our model explain the economy in britain before 1870 where working hours fells and wages rose?
Income effect- By the late 19th century workers had a higher level of consumption and valued free time relatively more- their MRS was higher- so the income effect of a wage wise was larger. Substitution effect- This was consistent with the period before 1870 Income effect now dominates- When the income effect began to outweigh the substitution effect, working time fell.
What are some features for indifference curves?
Indifference curves slope downwards due to trade-offs- If you are indifferent between 2 combinations, the combination that has more of one good must have less of the other good. Higher indifference curves correspond to higher utility levels- As we move up and to the right in the diagram, further away from the origin, we move to combinations with more of both goods Indifference curves are usually smooth- Small changes in the amounts of goods don't cause big jumps in utility Indifference curves do not cross As you move right along an indifference curve it becomes flatter.
What can technological change do to employees?
It can make them more productive.
What is the slope of the budget constraint?
It corresponds to the wage. and also MRT and marginal product(which is wage) For each additional hour of free time, consumption must decrease by £15 (opportunity cost of an hour of free time(x-axis))
What will technological change do to Angela's choice of free time grain consumption?
It could change it .
What does technological progress do to the feasible set?
It expands the feasible set. It gives you a wider choice of combinations.
Why do indifference curves become gradually flatter as you move to the right along them?
It is reasonable to assume that the more free time and the lower grade he has, the less willing he will be to sacrifice further percentage points in return for free time, so his MRS will be lower. When free time is scarce relative to grade points, A is less willing to sacrifice an hour for a higher grade: His MRS is high and his indifference curve is steep.
What is the feasible frontier? in terms of choices
It is the constraint on your choices. It represents the trade-off you must make between the 2 goods you value.
What explanation does our model of working hours and free time provide for the fall in working hours since 1870?
It omits culture and politics. It uses the explanation of economics
What does fig3.2 tell us about countries that have higher incomes and the free time of worker?
It shows that workers in countries with a higher income (GDP per capita) tend to have more free time, But also that there are big differences in annual hours of free time between countries with similar income levels
Why do I need to study this decision making model that i will use in this section catefull?
It will be used throughout the course, because it provides insight into a wide range of economic problems.
How will technological change affect Angela?
It will enable her to achieve a higher utility. It can make it possible for her to consume more grain and have more free time, but whether she choosers to have more of both depends on her preferences and her willingness to substitute one for the other.
How will technological improvement affect the production function?
It will rotate the production function anti-clockwise at the origin. The new production function is steeper than the original one for every given number of hours. - So the MP of labour has increased at every point.
What did the essay 'Economic Possibilities for our Grandchildren' by Keynes published in 1930 suggest?
Keynes suggested that in the 100 years that would follow, technological improvement would make us, on average, 8x better off. What he called 'the economic problem, the struggle for subsistence' would be solved and we would have to work more than, say, 15hrs per week to satisfy our economic needs.
Was Keynes right in his prediction about us working 15hrs a week?
Keynes' prediction for the rate of technological progress in countries such as the US and UK has been approximately right, and working hours have fallen but less than he expected. It's unlovely we will be working 15hrs a week by 2030
What did Milton Friedman say about economists when they make models?
Milton Friedman, an economist, explained that when economists use models in the way that they do, they do not claim that people actually think through these calculations (such as equating MRS to MRT) each time we make a decision. Instead we each try various choices (sometimes not even intentionally) and we tend to adopt habits, or rules of thumb that make us feel satisfied and not regret our decisions. In his book 'Essays in positive economics' he described it as similar to playing pool: "Consider the problem of predicting the shots made by an expert billiard player. It seems not at all unreasonable that excellent predictions would be yielded by the hypothesis that the billiard player made his shots as if he knew the complicated mathematical formulas that would give the optimum directions of travel, could estimate accurately by eye the angles, etc., describing the location of the balls, could make lightning calculations from the formulas, and could then make the balls travel in the direction indicated by the formulas. Our confidence in this hypothesis is not based on the belief that billiard players, even expert ones, can or do go through the process described. It derives rather from the belief that, unless in some way or other they were capable of reaching essentially the same result, they would not in fact be expert billiard players." No need to learn quote.
Is the lack of realism in the free time and working hours model a shortcoming?
No It is an intentional feature of the model.
Is work activity easy to measure?
No it is difficult to measure. We also can't measure the effort required by different activities in a comparable way (e.g. baking a cake vs building a car)
Why is it that working hours in the US and Sweden increased even thought wages remained basically the same?
Perhaps the Swedes and the Americans came to value consumption more over these years. In other words, their preferences changes so that their MRS fell.(they became more like south korea) This may have occurred because in the US and Sweden, the share of income gained by the very rich increased considerably, and the lavish consumption habits of the rich set a higher standard for everyone else. As a result, many people of lesser means tried to mimic the consumption of the rich, a habit known as conspicuous consumption. According to this explanation, Swedes and Americans were 'keeping up with the Joneses'. The Joneses got richer, leading everyone else to change their preferences.
How have politics in some countries affected working hours?
Political parties also respond to the preference of voters, so changes in typical working hours have occurred in many countries as a result of legislation that imposed maximum working hours.
What can influence our choices?
Political, cultural and economic influences
What is true about US workers and South Korean workers as shown by the data on fig 3.23?
South Koreans work harder than US workers which is a preference from them.
What are the 2 effects of technological progress? Use Angela as example
Technological progress makes the production function steeper at every point so the marginal product of labour increases. This means the opportunity cost of free time is higher, giving her a greater incentive to work. But now that she can have more grain for each amount of free time, she may be more willing to give up some grain for more free time: that is, reduce her hours of work. These 2 effects act in opposite directions.
What has happened to wages around the same time as the IR?
The IR has been accompanied by a dramatic rise in wages
How do you find the MP from the production function?
The MP is the slope of the production function at that point.
What are the 2 trade-offs that A faces ? or anyone in a constrained choice problem
The MRS- This measures the trade-off that the agent is willing to make. For A-between the final grade and free time (x-axis). The MRT- their measured the trade-off that A is constrained to make by the feasible frontier
What is marginal product?
The additional amount of output that is produced if a particular input was increased by one unit, while holding all other inputs constant.
How does the Average product vary along the production function as we increase the input?
The average product falls as we move along the curve
What will happen to the budget constraint if the wage rises?
The budget constraint will be a steeper line going through (24,0) (24 hrs free time and 0 consumption) The slope will be equal to the increased wage (e.g. 25£)
What will happen to your budget constraint if your parents decide to give you £50 a day for life?
The budget constraint will shift up by £50 and the feasible set will expand. For each level of free time, your total income is £50 higher than before.
What is a feasible frontier?
The curve made of points that define the maximum feasible quantity of one good for a given quantity of the other.
What is the opportunity cost of percentage points for A?
The free time A has to give up to obtain them.
What is Alexeis (A) production function? The student who we assume if he works hard gets a better grade
The graph or table that shows how his grade will vary if his study hours change. Keeping all other factors constant. This is under normal conditions where no unpredictable events occur.
What do we predict will happen to working hours in the future?
The high-income economies will continue to experience a major transformation: the declining role of work in our lives We will go to work at a later age, stop working at an earlier age of our longer lives, and spend fewer hours at work during our working years.
What does A's feasible frontier show? fig 3.9
The highest grade he can achieve given the amount of free time he takes.
What is has happened to work hours as a result of workers working longer than they would like to work because of employers?
The hours that many people work are regulated by law, so that beyond some maximum amount neither the employee nor the employer can choose to work. In this case the government has limited the feasible set of hours and goods.
What is the solution to a constrained optimisation problem?
The individuals optimal choice
What is the opportunity cost of free time for A?
The lost percentage points in his grade
How does the marginal product vary along the production function as we increase the input?
The marginal product is diminishing
How does opportunity cost vary along the feasible frontier?
The more of one good you take, the higher the opportunity cost. For A the more free time he takes, the higher the MP of studying so the opportunity cost of free time increases.
What assumption do we use in this unit when middling the students choice of how many hours to work?
The more time spent working, the better the final grade will be.
How have living standards varied in countries since 1870?
There has been a huge increase in living standards since 1870
How will a rise in productivity affect hours of free time and consumption?
There will also be an income effect and substitution effect. There will be an increased incentive to work produced by the rise in the opportunity cost of free time, and an increased desire for free time when her income rises.
What do opportunity costs do?
They describe the unavoidable trade-offs in the presence of scarcity: Satisfying one objective more means satisfying other objectives less
What does it mean if the indifference curve for 2 different people cross?
They have different preferences
How have average real hourly earnings of American workers changed in the 20th century?
They increased more than 6x
What is a constrained choice problem?
This problem is about how we can do the best for ourselves, given our preferences and constraints, and when the things we value are scarce.
What would the implication of choosing a combination inside the feasible frontier be?
This would imply that you are throwing away something you value. You would be giving up something that is freely available- something that has no opportunity cost It would be foolish to do this but it is possible.
What did we use the model of a self-sufficient farmer (Angela) to do ?
To see how technological change can affect working hours. Angela can respond directly to the increase in her productivity brought about by the introduction of new technology.
Where can a model of decision making under scarcity be applied? One example, that will be used in this section
To the question of how much time to spend working, when facing a trade-off between more free time and more income. *extra* This model also helps to explain differences in hours that people work in different countries, and the changes in our hours of work throughout history
What is the average product?
Total output divided by a particular input, e.g. output per worker (output divided by number of workers) or per worker per hour (total output divided by the total number of hours of labour put in)
What does fig 3.1 show?
Trends in income and working hours since 1870 in 3 countries. In the late 19th century and early 20th, average income approximately trebles and work hours fell substantially. During the rest of the 20th century, income per head rose 4x. Hours of work continued to fall in Holland and France (albeit more slowly) but levelled off in the US where there has been little change since 1960.
Do working hours change?
While employees ordinarily cannot just tell their employers how many hours they want to work, over long periods of time the typical hours that we work change.
What happened to working time in the US from the late 19th century to mid 20th century?
Working time in many countries gradually fell. Fig 3.1 showed us how annual working hours have fallen since 1870 in Holland France and US
Can preferences change over time?
Yes If you look at fig3.1 You see that in the last part of the 20th century hours of work increased in the US even though wages hardly increased. Same in Sweden
Have countries experienced the same trend in regards to average income and free time ?
Yes But there are still differences in the outcomes.
In our model of Alexei is there an opportunity cost?
Yes Free time had a opportunity cost: Yo get more free time, Alexei has to forgo the opportunity of getting a higher grade.
Can people influence working hours in an individual level?
Yes e.g. employers who advertise jobs with working hours that most people prefer may find they have more applicants that other employers offering too many (or too few) hours
Is there evidence to back up the claim that a greater study time will lead to better grades?
Yes a study of students in Florida State University proves this. It shows that for students who are the same in all aspects including work environments (good or bad) excluding work hours, the more hours worked, the better their grades.
What systematic method could we use to graph A's preferences?
You could start with a given combination and try to find all other combinations that give A the same utility. You could ask him imagine you are at combination A, how many percentage points would you be willing to sacrifice to get an extra hour of free time ? With the answer that he gives, we can say that A is indifferent between combination A and the new combination E. We can continue to ask this question until we have a complete curve for this utility level.
What happens to the feasible set for a budget constraint when the wages rise?
Your feasible set has expanded.
What can the combined political, cultural and economic influences on our choices do?
the combined political, cultural and economic influences on our choices may produce some surprising trends.
