The Macroeconomics of Imperfect Competition and Nonclearing by Jean-Pascal Benassy

By Jean-Pascal Benassy

In this publication, Jean-Pascal Benassy makes an attempt to combine right into a unmarried unified framework dynamic macroeconomic versions reflecting such diversified strains of notion as normal equilibrium thought, imperfect festival, Keynesian concept, and rational expectancies. He starts off with an easy microeconomic synthesis of imperfect pageant and nonclearing markets usually equilibrium lower than rational expectancies. He then applies this framework to a great number of dynamic macroeconomic versions, overlaying such themes as continual unemployment, endogenous progress, and optimum fiscal-monetary regulations. The macroeconomic technique he makes use of is the same in spirit to that of the preferred genuine company cycles concept, however the scope is far wider. the entire versions are solved "by hand," making the underlying monetary mechanisms rather clear.

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Basic Concepts 17 setter. Although the construction of such an objective demand curve in a partial equilibrium framework is a trivial matter, things become much more complicated in a multimarket situation, as this requires a sophisticated general equilibrium argument. We will see in chapter 3 how to use the concepts developed here to rigorously construct an objective demand curve in a full general equilibrium system. Simple macroeconomic applications will be developed explicitly in chapters 4 and 5.

An agent i in market h may make a purchase di h ≥ 0, or a sale si h ≥ 0. We define his net purchase of good h as z i h = di h − si h , and the -dimensional vector of these net purchases as z i . Agent i’s final holdings of nonmonetary goods and money, xi and m i , are, respectively, x i = ωi + z i (1) m i = m¯ i − pz i (2) Note that equation (2), which describes the evolution of money holdings, is simply the conventional budget constraint for a monetary economy. 2 Equilibrium Having described the basic institutional structure of the economy, we now describe its Walrasian equilibrium, in order to contrast it with the non-Walrasian equilibrium concepts that will follow.

The solution is thus first characterized by ˜ Y = D(P) (30) Now inserting (30) into the expression of profits and maximizing, we obtain Basic Concepts 19 the first-order condition η(P) − 1 P η(P) (31) ˜ ∂ log D(P) >0 ∂ log P (32) (Y ) = where η(P) = − Equation (31) is the well-known “marginal cost equals marginal revenue” condition, in which we see that the firm will choose a price high enough so that it will not only want to serve the actual demand, but would even be willing to serve more demand at the price it has chosen.

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