Chapter 1 - – a state or condition that will continue...

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Economics 50 Chapter 1 – Analyzing Economic Problems 1. Why Study Microeconomics? 2. Three Key Analytical Tools 2.1. Exogenous variable – a variable whose value is taken as given in the analysis of an economic system 2.2. Endogenous variable – a variable whose value is determined within the economics system 2.3. Constrained optimization – an analytical tool for making the best (optimal) choice, taking into account any possible limitations or restrictions on the choice 2.4. Objective function – the relationship that a decision maker seeks to maximize or minimize 2.5. Constraints – the restrictions or limits imposed on a decision maker in a constrained optimization problem 2.6. Equilibrium
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Unformatted text preview: – a state or condition that will continue indefinitely as long as factors exogenous to the system remain unchanged 2.7. Comparative statics – analysis used to examine how a change in some exogenous variable will affect the level of some endogenous variable in an economic system 3. Positive and Normative Analysis 3.1. Positive analysis – analysis that attempts to explain how an economic system works or to predict how it will change over time “What is happening?” 3.2. Normative analysis – analysis that typically focuses on issues of social welfare, examining what will enhance or detract from the common good “ What should be done?”...
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