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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: - PowerPoint PPT Presentation

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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

  1. 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

  2. P L A N F O R T O D A Y Opportunity cost Preferences and tradeoffs

  3. O P P O R T U N I T Y C O S T

  5. 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

  6. Slope 100 = marginal rate of transformation (MRT) 90 = opportunity cost A E 80 D B 70 Final grade 60 C F 50 Feasible set 40 30 20 10 0 0 1 2 3 4 5 6 7 8 9 101112131415161718192021222324 Hours of free time per day A E C F Free time 13 14 19 20 Grade 84 81 57 50 Opportunity cost 3 7

  8. O P P O R T U N I T Y C O S T Cost for $25 theater concert Value of park $15 concert to you Economic $40 cost of theater Value of theater $50 $35 concert to you Theater Park Your choice

  9. P R E F E R E N C E S & T R A D E O F F S

  11. U T I L I T Y Happiness points

  12. Diminishing marginal utility

  13. U T I L I T Y B U N D L E S Theoretical combination of goods that provide same level of utility

  14. U T I L I T Y B U N D L E S 2 300 4

  15. What combinations of inputs will produce 12 utils?

  17. I N D I F F E R E N C E C U R V E S 100 B A 84 E 75 F G H Final grade D 50 C 0 0 24 15 16 20 Hours of free time per day

  18. Slope of indifference curve = marginal rate of substitution (MRS) MRS at A = 9 MRS at H = 4

  19. I N D I F F E R E N C E C U R V E S

  20. Marginal rate of substitution (MRS) Theoretical tradeoff between inputs Slope of indifference curve Marginal rate of transformation (MRT) Actual tradeoff between inputs constrained by feasible frontier Slope of feasible frontier

  21. What’s the best number of workers to use / planes to make? What’s the best combination of hours studied / free time?

  22. Feasible 100 frontier 9 B MRS = MRT 0 D E 5 Final grade 7 C IC 4 IC 3 IC 2 IC 1 A 0 0 19 24 Hours of free time per day

  23. 16 14 MRS = MRT = most utility 12 10 Planes 8 6 4 2 0 0 5 10 15 20 25 Free workers

  24. 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 out ideal MRS (Δy/Δx = price x / price y = MUx / MUy) 3. MRT = MRS and solve for x and y

  25. Waffles (x) $1 $2 Calzones (y) Utility Budget $20

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