ECON 111 Chapter Notes - Chapter 1.2: Constrained Optimization, Equation

• School: Queen's University
• Department: Economics
• Course: ECON 111
• Professor: Ugurhan Gazi Berkok

Document Summary

Exogenous variable: a variable whose value is taken as given in the analysis of an economic system. (outside of the model being examined) Endogenous variable: a variable whose value is determined within the economic system being studied. (inside of the model being examined). Constrained optimization: an analytical tool for making the best (optimal) choice, taking into account any possible limitations or restrictions on the choice. Objective function: the relationship decision makers seek to maximize and minimize. Constraints: the restrictions or limits imposed on a decision maker in constrained optimization problem. quantity of food, plus price of clothes times the quantity of clothes, must be less then fixed income (two good world). Example of an objective function: (pf)(f) + (pc(cid:524)(cid:523)c(cid:524) < ) price of food times. (cid:498)the solution to any constrained optimization problem depends on the function. (cid:499)