handout 3 - University of Minnesota Department of Economics...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Minnesota Department of Economics Handout 3 (Last revised: October 10) This handout presents how we can use all the results obtained in handouts 1 and 2 in order ll do this in two di/erent routes: following 1 Competitive equilibrium In class we gave the de±nition of competitive equilibrium, now we can do it mathsmatically: Def: A competitive equilibrium is a set of ( C;N s ;N d ;T;Y;w ) such that given ( G;z;K;h ) : 1. The representative consumer chooses C;‘ to solve max C;‘ U ( C;‘ ) s.t. C = w ( h ) + T C ± 0 0 ² ² h where N s = h . 2. The representative ±rm chooses N d to solve max N d zF ( K;N d ) wN d s.t. N d ± 0 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
where Y = zF ( K;N d ) , = Y wN d = zF ( K;N d ) wN d . 3. All markets clear: N d = N s : G = T: 2 Characterizing the competitive equilibrium U ( C;‘ ) wU C ( C;‘ ) = 0 (1) wN s + T C = 0 : (2) zF N ( K;N d ) = w; (3) and ±nally, we need the market clearing condition, plus the government budget constraint: N d = N s (4) G = T: (5) N d = N s = N , and substitute in (2), 2
Background image of page 2
(3). Then we get: wN + T C
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/10/2010 for the course ECON 3101 taught by Professor Staff during the Spring '08 term at Minnesota.

Page1 / 8

handout 3 - University of Minnesota Department of Economics...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online