# Economic theory

The software is useful only because each model encodes a coherent system of economic
accounts, behavioral equations, identities, market-clearing conditions, and closure rules.

For the Hosoe Standard CGE, the major blocks fit together as follows.

```{mermaid} ../diagrams/standard-cge-theory.mmd
:name: standard-cge-economic-structure
:alt: Economic structure of the Standard CGE model linking production, factor markets, households, government, investment, domestic markets, imports, exports, and the rest of the world.
```

Use the mouse wheel or a trackpad pinch gesture to **zoom**, drag to **pan**, or select
**⛶** to inspect the diagram in full screen.

````{dropdown} Mermaid source
{download}`Download the .mmd source </diagrams/standard-cge-theory.mmd>`

```{literalinclude} /diagrams/standard-cge-theory.mmd
:language: text
```
````

A useful reading sequence is:

1. {doc}`sam` — what the benchmark accounting table means;
2. {doc}`production` — how sectors transform inputs into output;
3. {doc}`final-demand` — household, government, and investment demand;
4. {doc}`trade` — Armington import substitution and CET export transformation;
5. {doc}`closure` — what is exogenous, what adjusts, and why one equilibrium condition is redundant.

The diagrams are explanatory views of the equations; the authoritative model definitions
and validation evidence remain the implementation and reference tests.