General equilibrium theory is a branch of theoretical neoclassical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many markets, by seeking to prove that equilibrium prices for goods exist and that all prices are at equilibrium, hence general equilibrium, in contrast to partial equilibrium. As with all models, this is an abstraction from a real economy, but is proposed as being a useful ...
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General equilibrium theory is a branch of theoretical neoclassical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many markets, by seeking to prove that equilibrium prices for goods exist and that all prices are at equilibrium, hence general equilibrium, in contrast to partial equilibrium. As with all models, this is an abstraction from a real economy, but is proposed as being a useful model, both by considering equilibrium prices as long-term prices, and by considering actual prices as deviations from equilibrium.
General equilibrium theory both studies economies using the model of equilibrium pricing, and seeks to determine in which circumstances the assumptions of general equilibrium will hold. The theory dates to the 1870s, particularly the work of French economist Léon Walras.
It is often assumed that agents are price takers and in that setting two common notions of equilibrium exist: Walrasian (or competitive)...
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