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ECON 2150 – CHAP 1.docx

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Economics 2150A/B
Irene Trela

ECON 2150 – CHAP 1 1.1– Why study econ?  Science of constrained choice   need to sacrifice one thing for more of another 1.2Three key analytical tools  Exogenous variable  value is taken as given in analysis of econ system   determined outside of the model  fixed variable  cannot control  Endogenous variable -> value determined within econ system being studied   result is variable  model affects variable  dependent Constrained optimization   used when decision maker seeks to make best choice, taking into account any possible limitations or restrictions on choices  2 parts  objective function and set of constraints  objective function  relationship that decision maker seeks to optimize (maximize or minimize)  constraints  restrictions or limits on decision maker  eg. try to maximize area (objective function) under certain limit (constraint)  max subject to: total =/> restriction  solution to constrained opt prom  marginal impact of decision variables on value of
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