Question

Consider the following closed economy: There are three sectors: S, S2, S3. Sector one consumes 90 percent of it's own product, sells 10 percent to sector two and nothing to sector three. Sector two consumes 40 percent of it's own product, sells 40 percent to sector one and 2 percent to sector three. Sector three consumes 20 percent of it's own product, sells 40 percent to sector 1 and 40 percent to sector 2. 1. Write a se t of equations that describes, for each sector, the total cost of products bought/ consumed, ci, c2, and c3, in terms of the variables P, P, and Ps (which represent the total price of goods produced by sectors 1, 2, and 3 respectively). 2. If economy is in equilibrium, write a system of linear equations that describes the relationships between the prices P1, P2, and Ps. . Describe (e-g., parametrize) the possible equilibrium prices.