ECO209Y5 Chapter Notes - Chapter 5: Autarky, Budget Constraint, Competitive Equilibrium
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Gove(cid:396)(cid:374)(cid:373)e(cid:374)t; co(cid:373)petitive e(cid:395)uili(cid:271)(cid:396)iu(cid:373); opti(cid:373)alit(cid:455); disto(cid:396)ti(cid:374)g ta(cid:454); pu(cid:271)li(cid:272) goods. We want to start our approach to macroeconomic modelling by analyzing how consumers & firms interact in markets in a closed economy. This is a model of a single country that has no interaction with the rest of the world; it doesn"t trade with others. It is easier to first understand how a closed economy works, and much of the economic intuition we will build up for the closed-economy case will carry over to an open economy, which includes international trade. 3 different actors in our model: representative consumer, representative firm, government *new* The behaviour of the government here is quite simple. It wants to purchase a given quantity of consumption goods, g, and finances these purchases by taxing the representative consumer. The government also has a special role to play in providing public goods, such as national defence.
