L3 - Scarcity

What does a higher indifference curve on a consumption-leisure graph mean?

Higher utility

diminishing marginal utility

Nice things become less nice as you consume more of them

Marginal rate of substitution

Rate of one good that will be sacrificed to gain one unit of another to keep utility constant

Why do indifference curves not cross

We know that points on different indifference curves don’t have the same utility so the crossing gives illogical answers. This is a violation of transitive

Trade off

To get more consumption or leisure, you must give up leisure or consumption

Budget constraint

Feasible frontier

Feasible set

Everything on or within the feasible frontier

Marginal rate of transformation

Slope of budget constraint - rate at which leisure time can be traded off to consumption