8. General Flashcards
1
Q
In a competitive economy what is the relative price of two goods equal to?
A
The marginal rate of transformation between the two goods
2
Q
Why is the complementary slackness condition crucial?
A
Because it helps decide if a constraint is “important” or not. This condition plays a determinant role in dynamic optimisation
3
Q
When do we use dynamic programming?
A
To solve stochastic problems in discrete time
4
Q
When do we use optimal control?
A
To solve dynamic optimisation problems when one of the constraints is a differential equation. These constraints are typical in economic growth theory
