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Chapter 4 Detailed Notes/Summary
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Notes05/10/2023 13:20
- Interesting debate relating to working hours and GDP per capita
○ You would expect to see that as GDP per capita increase, people would want to
work less as they value their free time. With a higher GDP per capita people can
satisfy their economic wants/needs by working fewer hours
○ But there is also the idea that as things like wages (GDP per capita) rises, people
may begin to realise that if they work more hours they can continue to earn eve
more. Therefore, sometimes we see that as GDP per capita rises, so do the work
hours
4.2
- Ceteris Paribus - the Latin phrase for "all else held constant". Used in economic model
order to help simplify models.
○ The best example of Ceteris Paribus can be explained by taking the example of w
happens to demand when there is a change in price. We assume that income sta
the same, consumer preferences stay the same and many other things
4.3
- Opportunity cost - the loss that would be occurred after choosing the next best
alternative
○ For example when we talk about time spent studying and getting a good grade.
could say that the opportunity cost of having one extra hour of free time could
result in a lower grade. The lower grade would be the opportunity cost
- Economic cost is considered as the out of pocket price as well as the opportunity cost
- The benefit of an action minus the economic cost is known as Economic rent
4.4
- Production Function - a graphical or mathematical expression that can determine (cet
paribus) the relationship between two options
○ In this chapter we take the example of study time vs grades
- Another way to describe the production function is that it tells us how much of a
good/service can be produced based on the inputs provided
○ Out example would be: output is the final grade received and input is the numbe
hours spent studying
- Marginal product - marginal product is the extra output that is yielded by increasing in
by one unit. In the case of this production function. Marginal product is the slope of th
line at a certain point
- Diminishing returns - the idea that marginal product decreases as more input is put in
○ In the case of this example we can see diminishing returns as the slope of the lin
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