Christodoulos Stefanadis (University of Piraeus)

Seminar Title: Monopolistic Competition and Inadequate Aggregate Demand

In a framework of monopolistic competition we show that a possible cause of inadequate aggregate demand may be the presence of a sufficiently small number of firms in the market in the short run.  Each firm may produce a limited amount of its good even when its cost (the wage rate) is zero.  When in the short run the number of firms is small, total equilibrium output may be insufficient to warrant the employment of all agents, which generates involuntary unemployment.  The economy’s self-balancing mechanism is the free entry of firms, which occurs only in the long run. 

This week's seminar will take place in A45 Sir Clive Granger.