This lecture introduces the demand system in GTAP.
Final demand
The final demand system of GTAP is a multi-layer tree structure
In the top layer, the utility of the regional household is modeled with the Cobb-Douglas function and three components.
In the second layer, we specify the commodity demand for each component:
- private household: CDE function
- government: Cobb-Douglas function
- saving: inputs for the CGDS sector
Private household's demand
Among the three components of final demand, we care the private household's demand the most.
To obtain private household's demand, we need to follow two steps:
- Solve the demand of commodities from the generic demand equation
- Use a specific functional form to calculate parameters for the generic demand equation. In GTAP, we select the Constant Difference of Elasticity (CDE) function to represent a non-homothetic demand system.
The note on the demand system with CDE provides details on how do we solve parameters of generic demand equation with CDE.