(Ucl - Ucc FL)dc +(Ull - Ucl FL + Uc FLL)dl (Uc – FKL)dK = 0 FK dK - FL dl = dc (2 eqns in 2 unknowns: dc,dl) (could set this up in matrix form, see p.32) - these two equations can then be solved for the comparative static results: dl/dK and dc/dK e.g. - What does this type of model have to do with macroeconomics? - Microfoundations approaches: decision-makers make decisions in an optimal way. - Single decision-maker models common in the “new macroeconomics”. - Underlying this? one “Representative agent” assumption – representative decision-maker can represent actions of many similar decision-makers. - Resource constraint: maximizes well-being s.t. limited resources and technology. (an economy must satisfy such constraints) - A general equilibrium problem: - consumption, labour supply, output supply all jointly determined. - goods produced are consumed (goods market equilibrium) - labour supplied is employed to produce output (labour market equilibrium)
(Ucl - Ucc FL)dc +(Ull - Ucl FL + Uc FLL)dl – (Uc FKL)dK = 0 FK dK - FL dl = dc (2 eqns in 2 unknowns: dc,dl) (could set this up in matrix form, see p.32) - these two equations can then be solved for the comparative static results: dl/dK and dc/dK e.g. - What does this type of model have to do with macroeconomics? - Microfoundations approaches: decision-makers make decisions in an optimal way. - Single decision-maker models common in the “new macroeconomics”. - Underlying this? “Representative agent” assumption – one representative decision-maker can represent actions of many similar decision-makers. - Resource constraint: maximizes well-being s.t. limited resources and technology. (an economy must satisfy such constraints) - A general equilibrium problem: - consumption, labour supply, output supply all jointly determined. - goods produced are consumed (goods market equilibrium) - labour supplied is employed to produce output (labour market equilibrium)