Taste for variety: Model of Grossman and Helpman.

Variety expansionEquilibriumProducts markets clearing◮ At every point in time markets for final goods in bothcountries should be in equilibrium;◮ Static equilibrium implies, that:in both countriesp Yi Y i = s i (p Y1 , p Y2 )E; (27)◮ The function s i (•) is the function (fraction of expenditures)derived from intertemporal optimization of consumption;◮ It is homogeneous of degree zero;◮ Clearing condition means that consumption of final goods isequal to the share of world spending allocated to final productby consumers.