The average product of labour is a measure of labor productivity, calculated by dividing the total output produced by the quantity of the labor input used. The text suggests that this concept is introduced alongside production functions.

Average Product of Labour

The baseline case establishes a benchmark where Angela is an independent farmer who owns her land and keeps all the grain she produces. In this scenario, she divides her day between work and free time, with her work generating grain that she also consumes. The model uses 't' to denote her daily hours of free time and 'c' for the bushels of grain she consumes per day. This situation is modeled as a constrained choice problem where she maximizes her utility by selecting the best combination of free time and grain on her feasible frontier. This outcome is a crucial reference point for evaluating her welfare in later scenarios involving a landowner.

Baseline Case - Angela's Optimal Outcome as an Independent Farmer

Angela's feasible combinations of grain and free time are constrained by her farming technology. This is represented by a production function which specifies the grain output for any given number of work hours. This function is assumed to have a concave shape, meaning it slopes upward but flattens as work hours increase, which reflects diminishing marginal returns. This shape is considered a plausible assumption for many economic models.

Angela's Production Function

A production function is an economic concept that describes the technical relationship between the quantity of inputs used, such as labor hours, and the maximum quantity of output that can be produced. The text indicates that this is a foundational topic necessary for understanding the economic models being presented.

Google

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Microeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

CORE Econ - The Economy 2.0: Microeconomics

This includes stress, anxiety, and depression.

Refugees Experience Emotional Distress

William Nordhaus is an economist recognized for his work on the economics of climate change and for his critiques of economic growth measurements. In his notable 2007 paper, 'A Review of the Stern Review on the Economics of Climate Change,' he challenged the 2006 Stern Review's use of a very low discount rate. [1, 2, 6, 7] Nordhaus argued that this choice excessively weighted the impacts of climate change in the distant future and that using a higher, more conventional discount rate would invalidate the Review's urgent calls for dramatic policy action. [2, 8] In separate research from 1998, he used the history of lighting as an example to question the accuracy of standard measures of real output and wages.

William Nordhaus

The Cowles Foundation for Research in Economics is an economic research institution. It is mentioned as the publisher of William Nordhaus's 1998 paper on the measurement of real output and wages.

Cowles Foundation for Research in Economics

In the Angela-Bruno model, an 'allocation' defines the outcome for each party, where the grain received by Angela and Bruno is considered their income from the interaction. An allocation is specified by the amount of grain for Bruno ($b$) and Angela ($c$), along with Angela's free time ($t$). A key constraint is that the total grain distributed ($b+c$) cannot exceed the total amount produced. Furthermore, the model imposes a non-negativity constraint, requiring $b \ge 0$ and $c \ge 0$, which rules out the use of external or previously stored resources.

Allocation as Income in the Angela-Bruno Model

Production Function

The mathematical analysis of preferences is a method used in economics to formally model an individual's choices and trade-offs. This approach typically involves concepts like utility functions, indifference curves, and the marginal rate of substitution (MRS). A solid understanding of this analysis is an essential foundation for applying calculus to solve constrained optimization problems in economics.

Mathematical Analysis of Preferences

In microeconomics, a firm's behavior is analyzed using a general model that incorporates a cost function, C(Q), and an inverse demand function, P = f(Q). The cost function details the total cost of producing a given quantity Q, and serves as the basis for deriving the average and marginal cost functions. The inverse demand function specifies the price P that a firm can set for a particular quantity Q. This general framework is foundational for analyzing a firm's production and pricing decisions.

General Model of a Firm with Cost and Demand Functions

Arthur Pigou (1877–1959) was a prominent neoclassical economist and a founder of welfare economics. Although his work was overlooked for much of the 20th century, it laid the groundwork for modern labour economics and environmental policy. His theoretical work was primarily focused on utilizing economics for the betterment of society. While he was outgoing in his youth, his experiences as an ambulance driver and conscientious objector in World War I, along with health anxieties, led him to become much more reclusive later in life.

Arthur Pigou (1877–1959)

Welfare economics is the area of economics that analyzes how the allocation of resources and goods affects the overall wellbeing of a society. Arthur Pigou is considered one of the pioneering neoclassical economists in this field.

Learn Before

Related

Learn After