The principal model in economic theory is the Walrasian model of general economic equilibrium. In it, consumers choose to demand and supply goods to maximize a utility function subject to the constraint that the value of what they demand must equal the value of what they supply. Producers choose to demand and supply goods to maximize profits subject to the restrictions of a production technology. An equilibrium of this model is a vector of prices, one for each good, which the agents all take as given in solving their maximization problems, such that demand is equal to supply for every good. Economists use this type of model to do comparative statics analysis: they first compute a benchmark equilibrium for the model; they then change a parameter of the model such as a tax rate; finally they compare the new equilibrium with the benchmark. Large-scale empirical models are often used to do policy analysis (see, for example, Kehoe and Serra-Puche, 1983, and Shoven and Whalley, 1984).
|Original language||English (US)|
|Title of host publication||The Economy as an Evolving Complex System|
|Subtitle of host publication||The Proceedings of the Evolutionary Paths of the Global Economy Workshop, Held September, 1987 in Santa Fe, New Mexico|
|Number of pages||22|
|State||Published - Jan 1 2018|