General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general equilibrium, in contrast to partial equilibrium, which only analyzes single markets. As with all models, this is an abstraction from a real economy; it 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 in his pioneering 1874 work Elements of Pure Economics.
Read more about General Equilibrium Theory: Overview, Modern Concept of General Equilibrium in Economics, Properties and Characterization of General Equilibrium, Unresolved Problems in General Equilibrium, Computing General Equilibrium, Other Schools
Famous quotes containing the words general, equilibrium and/or theory:
“There are two great rules in life, the one general and the other particular. The first is that every one can in the end get what he wants if he only tries. This is the general rule. The particular rule is that every individual is more or less of an exception to the general rule.”
—Samuel Butler (1835–1902)
“They who feel cannot keep their minds in the equilibrium of a pair of scales: fear and hope have no equiponderant weights.”
—Horace Walpole (1717–1797)
“A theory if you hold it hard enough
And long enough gets rated as a creed....”
—Robert Frost (1874–1963)