ABSTRACT
Higher energy prices imply that a greater amount of economic resources must be devoted to the acquisition of energy. If more resources are devoted to producing energy, less are available for the production of other goods. Long term equilibrium requires both the short run general equilibrium conditions of supply and demand equality in each market, as well as equal rates of profit in all industries. In the absence of scarcity of energy, the model maintains equilibrium in both the short run and the long run. The dynamic element of the model is allocation of investment for increases in the sector specific capital stocks. After the static model has been solved in any year, there exists a stock of total investment goods that have been produced in that year. The supply of energy from crude oil and natural gas comes from two sources which must be treated separately, foreign markets and domestic production.
