Computable general equilibrium (CGE) models are sometimes criticized for being “black boxes” in which everything is moving at once. By deconstructing a standard CGE model with the aid of basic principles of economics, we hope to have dispelled some of their mystery and made them more comprehensible and useful to students and professional economists alike. Such an introductory study seems especially timely given the increased accessibility of CGE models and CGE model databases.

In this book, we studied the main components of a CGE model. We learned that producers in the model are assumed to maximize efficiency, and consumers are assumed to maximize utility. Their microeconomic behavior adds up to the macroeconomic performance of the economy. Our study of each component of the model – supply, demand, factor markets, trade, and taxes – emphasized the model's underlying economic theory and supplied practical examples from small-scale CGE models to illustrate these concepts.

We studied a “standard” CGE model that assumes a representative household consumer, a representative producer of each type of product, and uniquely determined solution values for prices and quantities. It is a static, or single-period, model that provides a before and after comparison of an economy after a shock, such as a tax, but it does not describe the economy's adjustment path from the old to the new equilibrium. All of these features of our CGE model can at times represent shortcomings or constraints.