Andrew, I need some more details before I can respond to this. 1st, it's not clear what endowments are, so it's hard to tell from your description what the "income effect" of a price change might be. In particular, do individuals hold ownership shares in firms as part of their endowment? In that case one might need to know the production technology as well. 2nd, if there's a single consumer, how is there any exchange? Do you mean that all agents have the same utility function? If so, how many agents are there? 3rd, how are you defining "technological improvement"? In solidarity, Gil > I'd like some help with a simple general equilibrium model I'm constructing > to show that technological change can reduce labor demand and employment, > even given all the usual neoclassical assumptions. I've got two goods, > labor and one other input, two output prices, the wage rate and the other > input price. > > I also think I've got enough equations. I have 1 more unknown than > equations, but that's evidently okay because I can set one price, say > the price of good 2, equal to 1. The problem is that gives gives me > results that seem strange. Namely: a technological improvement in > sector 1 ends up lowering the price of good 1 and increasing the > amount of good 1 demanded, but (perhaps because its price is set equal > to unity) demand for good 2 doesn't change. (I'm assuming a "single > consumer" with the utility function U = X1^a*X2^a, where X's are goods, > so that p1*X1 = p2*X2.) > > This is the kind of result one would get when the price of one good > falls, and the price of the other good, and income, remain constant, > in a partial-equilibrium consumer choice model. But it seems strange > here, because it seems that because p2 is set at unity, good 2 is > constrained to be non-normal. I.e., production and therefore consumption > increase, but demand for good 2 is unchanged. > > What's going on (wrong)? Help! > > Thanks in advance, > > Andrew Kliman > > >
