Since these assumptions make sense to most people, the model can be understood by intelligent lay people as well as trained economists. In the model, businesses produce goods to sell to other firms, consumers, investors, governments and purchasers outside the region. The output is produced using labor, capital, fuel and intermediate inputs. The demand for labor, capital and fuel per unit of output depends on their relative costs, since an increase in the price of any one of these inputs leads to substitution away from that input to other inputs. The supply of labor in the model depends on the number of people in the population and the proportion of those people who participate in the labor force.
Economic migration affects the population size.
More people will move into an area if the real after-tax wage rates or the likelihood of being employed increases in a region. Supply and demand for labor in the model determine the wage rates. These wage rates, along with other prices and productivity, determine the cost of doing business for every industry in the model. An increase in the cost of doing business causes either an increase in price or a cut in profits, depending on the market for the product. In either case, an increase in cost would decrease the share of the local and U.S. market supplied by local firms.