Assignment 05 - Computable CGE in General Equilibrium
Sorry for the recursive pun in the title.
Question 1:
In Burfischer 2021, the author presents a simple CGE model of the bicycle industry. Here we reproduce the key equations from the model.
Table 1.1 Bicycle industry model
| Model element | General notation | Numerical function |
|---|---|---|
| Supply equation: | \(\text{QO} = G(\text{PO}, P)\) | \(\text{QO} = -4\text{PO} + 2P\) |
| Demand equation: | \(\text{QDS} = F(P, Y)\) | \(\text{QDS} = -2Y - 2P\) |
| Market-clearing constraint: | \(Q^* = \text{QO} = \text{QDS}\) |
Endogenous variables
- \(Q^* =\) equilibrium quantity of bikes
- \(P =\) market price of bikes
Exogenous variables
- \(\text{PO} =\) input cost (e.g., tires, labor)
- \(Y =\) income
Use the numerical functions from the table above and solve for P and Q given the following exogenous parameters:
\[ Y = 6 \]
\[ PO = 1 \]
Solve for the base values of the two endogenous variables:
\[ P = \underline{\hspace{3cm}} \]
\[ \text{QO} = \text{QDS} = \underline{\hspace{3cm}} \]
Report these answers and your work in the output PDF.
Question 2:
Complete Module Exercise 3 in Burfisher 2021, up to question 3 on page 329. Report your answers your output PDF. You will likely want to do Module Exercises 1-2, which will again walk you through setting up the basic model. You could skip straight to question 3 if you feel very comfortable with your skills after hearing it all in lecture!