Public Finance, 4th Edition

General Equilibrium Price Models

General equilibrium price models can be rather complex or extremely simple depending on the assumptions made regarding the nature of demand and the underlying production technology for the economy and whether the economy is static or dynamic. Choices on demand range from one-consumer-equivalent economies to many-person economies with interpersonal equity rankings determined by a Bergson–Samuelson social welfare function. The key choice with respect to production technology is whether production exhibits linear or general technology and, if the latter, whether or not the technology has constant returns to scale. The choice of production technology also has direct implications for how market clearance is specified. ...