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W O R K , W E L L B E I N G , & S C A R C I T Y I I
MPA 612: Economy, Society, and Public Policy February 6, 2019
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W O R K , W E L L B E I N G , & S C A R C I T Y I I MPA 612: Economy, Society, and Public Policy February 6, 2019 Fill out your reading report on Learning Suite P L A N F O R T O D A Y Opportunity cost Preferences and tradeoffs O P
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O P P O R T U N I T Y C O S T
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O P P O R T U N I T Y C O S T
The value of the thing you can’t do because of a decision The value of the forgone option
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10 20 30 40 50 60 70 80 90 100 0 1 2 3 4 5 6 7 8 9 101112131415161718192021222324 Final grade Hours of free time per day B D
Feasible set
F
A E C F Free time 13 14 19 20 Grade 84 81 57 50 Opportunity cost 3 7
E C A
Slope = marginal rate of transformation (MRT) = opportunity cost
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O P P O R T U N I T Y C O S T
Cost for theater concert Value of park concert to you Economic cost of theater
$25 $15 $40
Value of theater concert to you
$50 $35
Theater Park
Your choice
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P R E F E R E N C E S & T R A D E O F F S
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U T I L I T Y
Happiness points
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Diminishing marginal utility
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Theoretical combination of goods that provide same level of utility
U T I L I T Y B U N D L E S
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U T I L I T Y B U N D L E S
2 300 4
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What combinations of inputs will produce 12 utils?
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Hours of free time per day Final grade 100 24 16 75 E C 20 D 50 B 15 84 A F G H
I N D I F F E R E N C E C U R V E S
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MRS at A = 9 MRS at H = 4 Slope of indifference curve = marginal rate of substitution (MRS)
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I N D I F F E R E N C E C U R V E S
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Marginal rate of substitution (MRS) Marginal rate of transformation (MRT)
Theoretical tradeoff between inputs Slope of indifference curve Actual tradeoff between inputs constrained by feasible frontier Slope of feasible frontier
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What’s the best number of workers to use / planes to make? What’s the best combination of hours studied / free time?
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9 IC4 IC2 IC3 IC1 Feasible frontier 5 7 19 24 A B C D E Hours of free time per day Final grade 100
MRS = MRT
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2 4 6 8 10 12 14 16 5 10 15 20 25 Planes Free workers
MRS = MRT = most utility
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U T I L I T Y M A X I M I Z A T I O N
- 0. Plot indifference curve
- 1. Figure out feasible set or MRT
(budget line)
- 2. Use calculus and prices to figure
- ut ideal MRS
(Δy/Δx = price x / price y = MUx / MUy)
- 3. MRT = MRS and solve for x and y
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