ECO100Y1 Lecture : Notes on General Equilibrium Model
Document Summary
These notes summarize lecture presentations from june 18 and 23, dealing with the general equilibrium model (figures 7a-3 and 7a-4 plus related discussion in the textbook). General equilibrium, as defined in this model, means that land and labour markets are both in equilibrium simultaneously. A new endogenous variable is introduced here: the wage paid to employees of manufacturing firms. These employees are also the model city"s residents the customers of housing firms in the city. Land market equilibrium, as outlined in chapter 6, requires that manufacturing firms and housing firms pay land rents giving them zero economic profit at all locations. For housing firms there is an additional equilibrium requirement discussed in chapter 6: the prices that residents pay for the firms" output must allow residents to obtain the equilibrium utility level again at all locations. The location variable for residents is commuting distance to the business area.
