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  3. University College London (UCL)
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  5. BSc Economics
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Summary Unit 3- Scarcity, work, and choice
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Comprehensive summary for Unit 3 in the Core Econ 'The Economy' textbook, used by universities such as UCL, Durham, Oxford, KCL, Warwick and many more. Notes include diagrams accompanied by explanations, definitions and an overall understanding of the unit broken down into each sub-section of the c...

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  • Unit 3
  • January 24, 2020
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  • 2019/2020
  • Summary

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Unit 3- Scarcity, work, and choice

Introduction
 Scarcity- must make decisions; limited means to meet objectives; trade-offs,
e.g. wage vs. leisure.
 Figure below shows the relationship between hours worked and average
incomes.




 Higher income countries seem to have lower working hours and more free
time- some may have similar free time but different levels of income.
3.1 Labour and production
 Assume that as number of hours worked increases, the amount of goods
produced also increases.
 Marginal product is the slope of the tangent at a given point.
 When marginal is less than average, it is diminishing as input increases.
 Marginal product is the rate of change.
3.2 Preferences
 Preferences are a description of the cost or benefit we associate with each
possible outcome.
 Utility is a numerical indicator of the value that one places on an outcome,
such that higher valued outcomes will be chosen over lower valued ones
when both are feasible.
 An indifference curve joins
together all of the combinations
that provide equal utility.
 Indifference curves slope
downwards due to trade-offs;
the combination that has more
of one good must have less of
the other good.
 Higher indifference curves
correspond to higher utility
levels.

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