MICROECONOMIC ANALYSIS OF A ONE SECTOR GENERAL EQUILIBRIUM MODEL WITH PRODUCT DIFFERENTIATIONON THE SIDE OF IMPORTS AND EXPORTS

The author analyzes the improvement in the terms-of-trade effects on a small open economy in a one sector general equilibrium model with product differentiation on the side of imports and exports. Reducing the model to only one sector helps in making the model itself as well as what hapens in it more transparent. Under such circumstances it becomes possible to better focus on pure macro effects that an exogenous shock will generate. The analysis of trade liberalization effects using computable general equilibrium models is one of the inputs which contemporary economic science can offer to help economic policy analysis in this area.