Summary of Production, Employment, Wages, and Prices

Abstract

In this section, the excess demands for pollution allowances are specified as a function of the market price of pollution allowances and the parameters (predetermined variables) that the various producers take as given at the beginning of the period. The price of pollution allowances is assumed to be determined at the same time that the individual industries set product prices and wages but before interest rates and exchange rates are established. The excess demands for pollution allowances by the nonrenewable resource industry, the capital goods industry, and the consumption goods industry are added and solved for the market price of pollution allowances that yields a zero aggregate excess demand for allowance. The resulting market price for pollution allowances is then substituted into the production functions and the factor demand functions of the various sectors.