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The Ramsey Model with a Monopolistically Competitive Market

In: ADVANCED MACROECONOMICS An Introduction for Undergraduates

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  • Angus C. Chu

Abstract

In this chapter, we will consider another form of market structure in the Ramsey model. Specifically, we consider monopolistic competition. In the model, there is a representative firm that produces the final good. Also, there are a number of firms that produce differentiated intermediate goods. Because each of these intermediate-good firms sells a differentiated product, it has market power and charges a markup over the marginal cost. This monopolistic distortion in turn causes the decentralised economy to have a different allocation of resources from the centralised economy. In other words, the first fundamental theorem of welfare economics does not hold in this setting due to the distortion of monopolistic competition, which in turn gives rise to market failure…

Suggested Citation

  • Angus C. Chu, 2020. "The Ramsey Model with a Monopolistically Competitive Market," World Scientific Book Chapters, in: ADVANCED MACROECONOMICS An Introduction for Undergraduates, chapter 12, pages 93-101, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781786349132_0012
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    Keywords

    Macroeconomics; Dynamic General Equilibrium; Economic Growth; Endogenous Technological Change; Monetary Policy; Fiscal Policy; Business Cycles; Unemployment; Market Failure; The Neoclassical Growth Model; The Romer Model; The Schumpeterian Growth Model; The Solow Growth Model; The Ramsey Model; The New Keynesian Model;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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