### Example Problem: Equilibrium Prices in a Two-Sector Economy**Suppose an economy has only two sectors: Goods and Services. Each year, Goods sells 75% of its outputs to Services and keeps the rest, while Services sells 72% of its output to Goods and retains the rest. Find equilibrium prices for the annual outputs of the Goods and Services sectors that make each sector’s income match its expenditures.**#### Explanation:To solve this problem, we need to set up a balance equation where the expenditure of each sector equates to its income.#### Diagram Explanation:The given diagram is a flow chart showing the relationships and transactions between two sectors, Goods and Services:- Goods sector: - Sells 75% of its output to the Services sector. - Retains 25% of its output.- Services sector: - Sells 72% of its output to the Goods sector. - Retains 28% of its output.The transactions denoted in the diagram can be interpreted as follows:- From Goods to Services: 75% (0.75)- From Services to Goods: 72% (0.72)These output percentages indicate the proportion of output sold from one sector to another and the proportion retained within each sector.Using these relationships, we can form a system of linear equations to find the equilibrium prices.

Let the price of the total annual output of the good be Pg Let the price of the total annual output…

Suppose an economy has only two sectors: Goods and Services. Each year, Goods sells 75% of its outputs to Services and keeps the rest, while Services sells 72% of its output to Goods and retains the rest. Find equilibrium prices for the annual outputs of the Goods and Services sectors that make each sector's income match its expenditures. -0.75 0.25 Goods Services 0.28 0.72-

Suppose an economy has only two sectors: Goods and Services. Each year, Goods sells 75% of its outputs to Services and keeps the rest, while Services sells 72% of its output to Goods and retains the rest. Find equilibrium prices for the annual outputs of the Goods and Services sectors that make each sector's income match its expenditures. -0.75 0.25 Goods Services 0.28 0.72-

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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