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Unit 5 - Institutions
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THE BIG IDEA
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🏛️ INSTITUTION 💪 POWER
Formal (laws, contracts) + informal (norms, culture) 1. Structural Power
They: Your ability to walk away from bad deal
Set incentives Based on your reservation option
Restrict choices 2. Bargaining Power
Define outcomes Ability to:
Set terms
Influence outcomes
Threaten costs
⚖️ FAIRNESS
🧾 Substantive Fairness
(OUTCOME)
⚙️ Procedural Fairness (PROCESS)
Voluntary exchange
Income distribution Equal opportunity
Wealth Effort-based rewards
Wellbeing
Unit 5 - Institutions 1
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PRACTICAL STUDY APPLICATION
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Angela’s Preference Bruno’s Preference
VALUES → Free Time + Grain HORIZONTAL?
⁕ Bruno doesn’t care about
Higher Indifference Curve
= More Utility Angela’s free time, he only
cares about the grain he gets.
MRS → The trade-off Angela
is willing to make btwn the 2
goods.
Marginal Utility → Decreases
as Free time Increases
🏭 PRODUCTION FUNCTION
Angela’s production function translates Working Hours into
Grain Produced:
4 hours → 34 - f(4)
8 hours → 46 - f(8)
12 hours → 54 - f(12)
1. Average Product (AP) 2. Marginal Product (MP)
Y2 −Y1
AP = Y
X
OR AP = Grain
HoursW orked
MP =
X2 −X1
Output per unit of input Extra output from 1 more unit of input
Slope from origin Slope of curve at particular point
WHY IS IT CONCAVE?
- It has a diminishing Marginal Product
📉FEASIBLE FRONTIER (FF)
Derived from the production function (Inverse)
Working hours REPLACED by Free Time
Slope → MRT
↳ How much grain Angela must sacrifice for more free time.
Unit 5 - Institutions 2
Unit 5 - Institutions
⋆⋆⋆⋆⋆
THE BIG IDEA
⋆⋆⋆⋆⋆
🏛️ INSTITUTION 💪 POWER
Formal (laws, contracts) + informal (norms, culture) 1. Structural Power
They: Your ability to walk away from bad deal
Set incentives Based on your reservation option
Restrict choices 2. Bargaining Power
Define outcomes Ability to:
Set terms
Influence outcomes
Threaten costs
⚖️ FAIRNESS
🧾 Substantive Fairness
(OUTCOME)
⚙️ Procedural Fairness (PROCESS)
Voluntary exchange
Income distribution Equal opportunity
Wealth Effort-based rewards
Wellbeing
Unit 5 - Institutions 1
, ⋆⋆⋆⋆⋆
PRACTICAL STUDY APPLICATION
⋆⋆⋆⋆⋆
Angela’s Preference Bruno’s Preference
VALUES → Free Time + Grain HORIZONTAL?
⁕ Bruno doesn’t care about
Higher Indifference Curve
= More Utility Angela’s free time, he only
cares about the grain he gets.
MRS → The trade-off Angela
is willing to make btwn the 2
goods.
Marginal Utility → Decreases
as Free time Increases
🏭 PRODUCTION FUNCTION
Angela’s production function translates Working Hours into
Grain Produced:
4 hours → 34 - f(4)
8 hours → 46 - f(8)
12 hours → 54 - f(12)
1. Average Product (AP) 2. Marginal Product (MP)
Y2 −Y1
AP = Y
X
OR AP = Grain
HoursW orked
MP =
X2 −X1
Output per unit of input Extra output from 1 more unit of input
Slope from origin Slope of curve at particular point
WHY IS IT CONCAVE?
- It has a diminishing Marginal Product
📉FEASIBLE FRONTIER (FF)
Derived from the production function (Inverse)
Working hours REPLACED by Free Time
Slope → MRT
↳ How much grain Angela must sacrifice for more free time.
Unit 5 - Institutions 2
