Models after the transformation are dynamic, fully articulated model economies
in the general equilibrium sense of the word economy. Model people maximize
utility given the price system, policy, and their consumption possibility set;
firms maximize profits given their technology set, the price system, and policy;
and markets clear. Preferences, on the one hand, describe what people choose
from a given choice set. Technology, on the other hand, specifies what outputs
can be produced given the inputs. Preferences and technology are policy invariant.
They are the data of the theory and not the equations as in the system-of equations
approach. With the general equilibrium approach, empirical
knowledge is organized around preferences and technology, in sharp contrast
to the system-of-equations approach, which organizes knowledge about
equations that specify the behavior of aggregations of households and firms.