3. Wellbeing and Working Hours

These flashcards cover key vocabulary and concepts related to wellbeing and working hours, particularly in the context of economics and individual decision-making.

Optimal choice

The combination of free time and consumption that gives the highest utility within a feasible set.

Marginal rate of substitution (MRS)

The amount of consumption a person is willing to give up for one extra unit of free time, while keeping utility constant.

Income effect

The effect that a change in income has on the amount of a good that a person buys, due to the expansion of the feasible set.

Substitution effect

The effect that a change in the price of a good has on the quantity of that good a person buys, due to a change in its opportunity cost.

Indifference curve

A curve that joins all combinations of goods providing a given level of utility to the individual.

Opportunity cost

The cost of what you give up to get something else; the value of the next best alternative.

Budget constraint

All combinations of goods and services that can be acquired using the entire budget.

Feasible set

All combinations of goods and services that can be acquired using all or part of the budget.

Technological progress

Advancements in technology that increase the productivity of labor.

Veblen effect

The phenomenon where higher consumption by the rich results in others feeling the need to consume more to signal their social status.