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An Introductory General Equilibrium Model for Undergraduate Economics Students

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  • Alejandro Rodriguez Arana

    (Universidad Iberoamericana Mexico City)

Abstract

A two-sector general equilibrium model is presented. In the absence of externalities and public goods, the solution for market consumption and production would be the same as that of a hypothetical central planner if the fiscal balance is in equilibrium and there is a uniform consumption tax across all goods. Next, the effect of a negative externality generated by the consumption of one of the goods is analyzed. In this case, the optimal solution would be to establish a higher consumption tax rate for the good that generates the externality. Finally, the possibility of public goods is examined. Here, the optimal solution is for the government to set a target for the provision of these goods and generate fiscal resources to meet it, while maintaining a uniform consumption tax on all private goods.

Suggested Citation

  • Alejandro Rodriguez Arana, 2025. "An Introductory General Equilibrium Model for Undergraduate Economics Students," Working Paper Series Sobre México 2025003, Sobre México. Temas en economía.
    • Handle: RePEc:smx:wpaper:2025003
    as

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    References listed on IDEAS

    as
    1. Rómulo A. Chumacero & Klaus Schmidt-Hebbel, 2005. "General Equilibrium Models: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.),General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 1, pages 001-027, Central Bank of Chile.
    2. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 24(1), pages 11-32.
    3. Mark Blaug, 2007. "The Fundamental Theorems of Modern Welfare Economics, Historically Contemplated," History of Political Economy, Duke University Press, vol. 39(2), pages 185-207, Summer.
    4. Charles L. Ballard & John Karl Scholz & John B. Shoven, 1987. "The Value-Added Tax: A General Equilibrium Look at Its Efficiency and Incidence," NBER Chapters, in: The Effects of Taxation on Capital Accumulation, pages 445-480, National Bureau of Economic Research, Inc.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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