Sept.5 - What is a toolkit Economists have a particular way of looking at the world They see"optimizing or"maximizing behavior everywhere When

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What is a toolkit? - Economists have a particular way of looking at the world. - They see “optimizing” or “maximizing” behavior everywhere. - When individuals or businesses try to maximize, their behavior becomes predictable according to the basic models of microeconomics. - The toolkit shows you how this works so you can start working like an economist right away. - We use this toolkit all the time - If you pay careful and close attention you will notice a theme or a modus operandi running throughout nearly all of our discussions. o Set up an optimizing problem or model o Figure out how the model works and what characterizes a solution o Use the model to make predictions concerning how the players in the model react to changes in their environment o Test and/or apply the model. Maximizing Behavior - An individual or a business maximizes when it tries to do the best action possible according to a particular objective. - Usually that objective can be summarized as the difference between the total benefits and the total costs of the action. - Maximizing behavior means that one makes the difference between total benefits and total costs as big as possible. Computing an Optimum
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This note was uploaded on 02/12/2008 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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Sept.5 - What is a toolkit Economists have a particular way of looking at the world They see"optimizing or"maximizing behavior everywhere When

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