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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.