A "General Equilibrium" Analysis
In a market economy, everything is connected
to everything else. Changes to any of the variables influencing
product demand, for instance, affect the competitive market
price. Changes in a product's price affects the demand for
labor used to make that product. Changes in the demand for
labor affect a firm's marginal costs. This in turn affects
the competitive market supply of goods, further altering
market price. This again alters the demand for labor, and
on it goes...
Before the advent of the computer, this interrelatedness
was difficult to simulate, especially using graphical models.
For the last project in the course, you will use an Excel
workbook that simulates
a "general equilibrium model" of the perfectly
competitive markets for a product and the labor used to
make that product.
Your task will be to answer four groups of
questions, each having from 1 to 16 parts (39 questions
in total). These questions are found on the Questions tab
of the Excel workbook linked above. They ask you to trace
out the effects of changes to the demand for or supply of
the product on a representative firm in its role as a competitive
producer of a good, and in its role as a buyer of labor.
Your answers must be neatly typed and the
page must be easy to read. Each question must be answered
completely to receive full credit.
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