A competitive Equilibrium is defined as: © a set of quantities: C,N°,N7,T, Y © a set of relative prices, w (relative price of labor to consumption) @ such that given G,z,andK the following conditions satisfied: @ Consumers maximize Utility (?) @ Firms maximize Profits (?) © Markets clear: (?) @ Goods market clears, ie. C+ G=Y @ Labour market clears, ie. N? = NF =h—-/ @ Govt budget constraint is satisfied G=T Household FIRM Y a * Ye2 FCK,N) Labor Mavkel- w (opeEMP.4: An Increase in Gia ors Fem u : Dee 2 ‘ @ let Gr such that Gerry te sabiefy Governmant budgut const vail (Bc), we need t have Gea Te ty x PrF shifts duunward 6 PM-Highey taxes (Te) shifty te BC downward. Wis vesulh into a negative True Effet ee Te GY (43,4)OA) shifts tha lab & te right This res Excecs Suply of labor ia mavleer, which ia tun the veal wages te Wa- CW < @ Lower wages rotale Tmt cost curve downward. this induces firms fe re— opeimire oy hiring more | Ypbor fe the point where [MPNa=We ), A esulk, Firm has hired mare Ny and Was Ve weded. heglur ay a N jo f md rt (h<™M)e ie aoe Finn has iacreaged Aabsy Absrand in Yeapense ts A pedAdin iW Wake vehi So “his Wesults inte a Mover oberg the Lesy domond curve