Mesoeconomics

Mesoeconomics

Introduction

In this study, the author will explore the concept of mesoeconomics and examine important features related to the theory. In the 1970s, as Keynesian macroeconomics was criticized as inconsistent with the maximization actions of individual economic agents, many economists spent a great deal of their analytical skills in formulating various models searching for its microeconomic foundations. Most of these models, however, explicitly or implicitly assume perfect competition, and neutrality of money is their major policy implication. The focus of the search for the “missing link” between Keynesian macroeconomics and optimization behavior of economic agents has changed from the perfectly competitive microeconomic foundation models to the imperfectly competitive microeconomic foundation models at the outset of the 1980s, since NG (1980) effectively started the modern movement (Ruddock, 2008). In this paper the author explore a current development in a major mesoeconomic concept, market structure (monopoly, oligopoly, etc.), game theory, information asymmetries, agency theory, pricing strategies, etc. and then select two mesoeconomic concepts that help to explain and clarify two current events.

Discussion & Analysis

Mesoeconomics uses the representative firm approach to model both monopolistic and oligopolistic competitive products markets. Different assumptions have been applied to labor markets. However, comparing with other imperfectly competitive micro foundation models, Ng's work has several distinguishing features. First, it adopts general rather than specific demand and cost functions. Second, it emphasizes the importance of the role played by the elasticities of the perceived demand and the responses of costs faced by a representative firm in determining the effects of changes in aggregate demand and costs on output and the price level. Third, it highlights the usefulness of adopting a simplified version of general equilibrium analysis based on non-perfectly competitive representative firm, rather than using a model of n perfectly competitive industries of the Arrow-Debreu type general equilibrium analysis, in deriving ...