General Equilibrium and Disequilibrium

General equilibrium and disequilibrium (JEL D5) analyses how all markets in an economy interact and clear simultaneously.

Scope

It covers the existence, uniqueness, and stability of competitive equilibrium, the welfare theorems, and disequilibrium analysis.

Sub-topics

• General
• Exchange and Production Economies
• Incomplete Markets
• Financial Markets
• Input–Output Tables and Analysis
• Computable and Other Applied General Equilibrium Models
• Other

Core questions

• Can all markets clear simultaneously?
• Does a competitive equilibrium exist and is it efficient?
• Is equilibrium stable and unique?
• What happens out of equilibrium?

Key concepts

• Walrasian equilibrium
• Existence and uniqueness
• Stability
• Welfare theorems
• Excess demand
• Disequilibrium

Key theories

Existence of competitive equilibrium

Arrow and Debreu proved, under convexity, that a competitive equilibrium exists.

Axiomatic value theory

Debreu gave general equilibrium a rigorous axiomatic foundation.

History

General equilibrium theory was placed on rigorous foundations by Arrow, Debreu, and McKenzie in the 1950s, with later work on uniqueness, stability, and computable equilibria.

Debates

Is general equilibrium descriptively relevant?

Whether the model explains real economies or serves mainly as a benchmark.

Key figures

• Kenneth Arrow
• Gérard Debreu

Seminal works

• arrow-debreu-1954
• debreu-1959

Frequently asked questions

What is general equilibrium?

A state in which supply equals demand simultaneously in all markets of an economy, given prices that clear them.