In economics, a condition which has to be satisfied for any economic activity to be feasible. Constraints may arise from facts of nature: for example, a country has only a certain amount of land available. They may arise from human actions in the past: a country’s capital stock is predetermined by its past investment, and its working population by its past demographic and immigration policies. Such resource constraints can be gradually changed by human action. Technological constraints may arise from the limits on available technology; this again can be gradually improved on by research development. Incentive compatibility constraints are imposed on human ager by the need to motivate others. Constraints are usually expressed in terms of inequalities, since while the economy cannot use more of a resource than there is, some can be left unused. Economic problems typically take the form of maximizing or minimizing some objective function subject to satisfying a number of constraints, each of which may or may not be effective. See also budget constraint; liquidity constraint.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|