Economics 2150A/B Lecture Notes - Lecture 1: Exogeny, Comparative Statics, Equation
Economics 2150
Chapter 1 Textbook Notes
Sept. 9 2017
Chapter 1: Analyzing Economic Problems
Why Study Microeconomics?
• Economics = allocating limited resources to satisfy unlimited human wants
• Resources are scarce
o This means we are constrained in the choices we can make about production
o This is why economics is described as the science of constrained choice
• Microeconomics studies behaviour of individual economic decision makers
Three Key Analytical Tools
• Economic models must specify what vriables will be taken as given in the analysis, and
which are to be determined by the model
• Exogenous variables = the value is taken as given/understood in a model
• Endogenous variables = the value is determined within the model being studied
• 3 key analytical tools:
o constrained optimization
o equilibrium analysis
o comparative statics
Constrained Optimization
• this tool is used when a decision maker seeks to make the best choice, taking into
consideration any possible limitations/restrictions
• these problems have 2 parts
o objective function
o set of constraints
• objective function = the relationship the decision maker seeks to optimize
• economists state constrained optimization problems as so:
o max LW
subject to: 2L +2W < F
▪ the symbol is actually greater than or equal to sign but idk how to do that
on my laptop
o first line identifies objective function, second line represents the constraint
• the solution to any constrained optimization problem depends on the marginal impact
of decision variables on the value of the objective function
o eg) the marginal impact of money spent on TV advertising is how much beer
sales go up for every ADDITIONAL dollar spent on tv advertising
find more resources at oneclass.com
find more resources at oneclass.com
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ECON 2150A/B Full Course Notes
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