Economic equilibrium with costly marketing
Publisher Summary This chapter discusses the economic equilibrium with costly marketing. An essential step in modeling monetary behavior of the economy is to formalize the idea of transaction cost. Money and financial intermediaries are designed to reduce the real resource requirements of the trading process. In the present model, however, prices will change when markets reopen and consumers know it. The reason is that the production sets change with time in a particular way: It is not possible to use period resources in operating markets until period actually arrives. In the next period, new markets will open and price spreads in other markets will change. The consumer choose not to exploit fully his trading opportunities at this moment, but to defer some trades to the future when other markets will exist and price spreads may be more favorable to him. Consumers and producers in the traditional model have all the information they need to make once and for all a complete consumption plan.