y*=c* in output market labour supply = labour demand =(L*) - price mechanism here? - artificial here since the buyer is the seller in a one- person economy! - more natural if the decision-maker is a representative agent (one of many similar decision-makers e.g. many identical consumers, many identical firms) - Then pricing reflects interaction of buyers and sellers. - Characterizing the general equilibrium: - equilibrium: must satisfy constraints on behavior ; decision-makers must be acting optimally; allow for interdependence between decision- makers; decisions must be consistent (supply=demand) or else prices change. - Constraints: - Consumer budget constraint: + = P c  W∙(1-l) - note that consumer receives profit income from the business which depends on decisions business’ i.e. P y - W L = - substitute this into the budget constraint: + P y - W L = P c then use L=1-l W∙(1-l)
y*=c* in output market labour supply = labour demand =(L*) - price mechanism here? - artificial here since the buyer is the seller in a one- person economy! - more natural if the decision-maker is a representative agent (one of many similar decision-makers e.g. many identical consumers, many identical firms) - Then pricing reflects interaction of buyers and sellers. - Characterizing the general equilibrium: - equilibrium: must satisfy constraints on behavior ; decision-makers must be acting optimally; allow for interdependence between decision- makers; decisions must be consistent (supply=demand) or else prices change. - Constraints: - Consumer budget constraint: W∙(1-l) +  = P c - note that consumer receives profit income from the business which depends on business’ decisions i.e. = P y - W L - substitute this into the budget constraint: W∙(1-l) + P y - W L = P c then use L=1-l