ECO204Y1 Lecture Notes - Lecture 1: Constrained Optimization, Marginal Utility, Demand Curve
Document Summary
Study of how to allocate limited resources to satisfy unlimited wants. Theoretical construct that represents economic processes through different variables and a logical relationship between them. Allows economist to quantify and predict economic outcomes (usually mathematical) Consists of individual decision maker, agents: each agent has their own desires, or objective, and their own limitation, or constraints. Two types: exogenous variables are taken as a given. Production target: endogenous variables are determined within the model. How many units of a good an agent wants to buy. 3 main important tools: constrained optimization, equilibrium analysis, comparative statics find out if we change something to model, what happens to equilibrium. Every economic agent has a goal or objective. Every economic agent faces restrictions and limits, or constraints, on the actions they can do in pursuit of their objective. Agents in economic models choose actions that best achieve their objective subject to their own constraints. (rational)
