The Ramsey Model with a Monopolistically Competitive Market

Angus Chu

Chapter 12 in Advanced Macroeconomics:An Introduction for Undergraduates, 2020, pp 93-101 from World Scientific Publishing Co. Pte. Ltd.

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…

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 (search for similar items in EconPapers)
JEL-codes: E6 E62 E66 F4 F43 O11 (search for similar items in EconPapers)
Date: 2020
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