General equilibrium analysis

This comprehensive introduction to the structure and use of the two-sector model of general equilibrium assumes no prior knowledge of general equilibrium analysis nor of advanced algebra. Unlike other books on the subject, it is concerned with the mechanism by which an equilibrium is reached, rather than the reasons why a particular set of conditions are required for equilibrium.

The first part of the book discusses the rationale for, and the assumptions under lying, the two-sector model, and considers the model for a closed, competitive economy by combining separate models of the exchange and production sectors of a competitive economy. The model is then used to analyse the determinants of relative prices, output levels, allocation of resources and the distribution of income within such an economy. The second part of the book illustrates the power and adaptability of the two-sector model as a tool of positive analysis, and shows the power of the basic model by using it to analyse the effects of monopolies, wage and price rigidities other 'distortions' in a closed economy, and to predict the effects of exogenous changes in factor supplies and technical progress in a competitive economy.