Consider a model of the Goods Market characterized by the following equations: Z = C+I+G Y C+I+G C co + c1 (Y – T) bo + bịY G go + gıY where b1, c1, gi are between 0 and 1, and c1 + b1 + g1 < 1. Assume T is exogenous.

Consider a model of the Goods Market characterized by the following equations: Z = C+I+G Y C+I+G C co + c1 (Y – T) bo + bịY G go + gıY where b1, c1, gi are between 0 and 1, and c1 + b1 + g1 < 1. Assume T is exogenous.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter13: General Equilibrium And Welfare

Section: Chapter Questions

Problem 13.1P

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Concept explainers

Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.

Question

Supposeg1increases, but stillc1+b1+g1<1. Using a graph of the goods market, show how we would represent an increase in the value ofg1on equilibrium output y. Be sure to label all axes, curves, and equilibrium points.

Suppose instead,c1+b1+g1= 0. Is the equilibrium in the goods market still possible? If so, what is the equilibrium output? You must explain your answer to receive full credit.

Consider a model of the Goods Market characterized by the following equations:
Z = C+I+G
Y
C+I+G
C
co + c1 (Y – T)
bo + bịY
G
go + gıY
where b1, c1, gi are between 0 and 1, and c1 + b1 + g1 < 1. Assume T is exogenous.

Defintion Defintion Curve that represents the graphical relationship between the total supply of goods and services and the price level in the economy. When the price level increases, producers tend to supply more of a product in the market to earn a higher revenue or vice versa.

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