In addition we assume that there is a range of substitution between energy flows and capital stock which depends mainly on the time span allowed for substitution.
A number of important substitution relationships can be observed.
• In the production sector capital and labour can be substituted at least to some extent depending on relative factor prices.
• Energy flows for consumption C can be substituted by increasing the corresponding capital stock of the energy application system of the households (e.g. the efficiency appliances).
• Energy flows for production De can also be substituted by changing the capital stock of production equipment (e.g. by using more energy-efficient technologies).
Finally we specify the price linkages between energy and non-energy sectors. Import prices of energy PMe and non-energy PMn determine together with the domestic prices PQe and PQn the aggregate price levels of energy products PVe and non-energy products PVn, which again affect the various demand components.
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