ECON 101 Lecture 20: All Econ Notes
Document Summary
In a simple economic model, you have 1 objective, 1 constraint, and a stopping rule: objective. Gives the payoff or reward and shows what the payoff depends on and how. Accounting identity: tells you what resources you have and what you can do with them. Technological constraint: tells you the limits of what"s physically possible. Constraints imposed by decision makers: limits on the range of actions or outcomes. Ex) ny mayor constrained size of soda cup. Many constraints show how things evolve over time. Need constraints or else people get whatever they want; not realistic: stopping rule. De nition of a condition that the model should achieve. Also serves as an instruction about how to work the model. Ex: in a simple model with an objective and a constraint, we may be done when the objective is maximized or minimized, subject to the constraint.
