ABSTRACT
This chapter devotes to the rather arid task of constructing a full general equilibrium two-sector model of the economy, bringing in income distribution and factor-owner preferences in addition to production conditions (technology and relative factor supplies) as determinants of the full equilibrium solution. Before proceeding to the construction of the two-sector general equilibrium model, the author should like as a background to summarize briefly two familiar one-sector models of production and distribution, both focused on the problem of the functional distribution of income – the Ricardian model and the Hicksian model. Apart from the objections that may be raised – for quite different reasons – against their treatment of the nature of capital, both the idealized Ricardian model and the Hicksian model of distribution suffer from the restrictive characteristic of one-sector models, the elimination of demand factors, which makes the functional distribution of income a mechanistic consequence of the available technology and factor supplies.
