StepbyStep Example Using Solver
This page gives a stepbystep tutorial on using the Solver based models. We will consider simulating the StolperSamuelson theorem using the single economy version of the HOS model. First open the sheet in Excel. You should see the following screen (we are using Excel 2007): Click on the image to see it in full size. You should have the Solver addin installed following the instructions. To simulate StolperSamuelson we use the spinner next to cell C14 to increase the price of good X by (say) 20 percent:
As we change the price, note that the graphs move in response. The unit value isoquant for X moves inward, while the isoprice for X moves outward. The prevailing factor prices are not a solution. Now, from the ribbon select the Data tab and click on the Solver button under Analysis:
If you are using Excel 2003, choose Solver from the Tools menu. The following dialog appears:
This is the model, written in Excel. Click the Solve button in the top right, and the following dialog appears:
This indicates that a solution was found. Clicking OK returns us to the sheet:
We observe that the price of capital has risen by more than 20 percent, while the price of labor has fallen. Examination of the factor use matrix confirms that X is capitalintensive, so the result is consistent with what the StolperSamuelson theorem predicts. The graphs depict the new equilibrium. We also observe that output of X has risen in response to the price rise, while output of Y has fallen, and so on. Any other simulation can be conducted in the same way.
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