What is inada conditions?

Inada conditions are a set of assumptions used in economic models to ensure the existence of a unique equilibrium point. They were first introduced by Japanese economist Takashi Inada in his 1963 paper "On a Two-Sector Model of Economic Growth."

The Inada conditions are as follows:

1. The marginal product of capital must be positive and decreasing, meaning that as the amount of capital increases, the additional output produced by each unit of capital decreases.

2. The marginal utility of consumption must be positive and decreasing, meaning that as consumption increases, the additional utility gained by each additional unit of consumption decreases.

These conditions are often used in models of economic growth, where they help ensure that the economy will reach a steady state in which the growth rate of output is stable. They are also used in models of optimal consumption and investment decisions, where they help ensure that individuals will make choices that maximize their utility over time.