CAS EC 102 : notes.pdf

• School: Boston University
• Department: Economics
• Course: CAS EC 102
• Professor: Graham Wilson

Document Summary

This chapter deals with the most simple kind of macroeconomic model, which abstracts from all issues of heterogeneity and distribution among economic agents. Here, we study an economy consisting of a representative. As we will show, this is equivalent, under some circumstances, to studying an economy with many identical rms and many identical consumers. Here, as in all the models we will study, economic agents optimize, i. e. they maximize some objective subject to the constraints they face. The preferences of consumers, the technology available to rms, and the endowments of resources available to consumers and rms, combined with optimizing behavior and some notion of equilibrium, allow us to use the model to make predictions. Here, the equilibrium concept we will use is competitive equilibrium, i. e. all economic agents are assumed to be price-takers. There is one period and n consumers, who each have preferences given by the utility function u(c; is leisure.