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 firm and a representative consumer. As we will show, this is equivalent, under some circumstances, to studying an economy with many identical firms 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 firms, and the endowments of resources available to consumers and firms, 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.
Link To Content
Link To Content
