General Equilibrium

The concept of ‘equilibrium’ stands as a cornerstone in the field of Economics, offering insights into the relationship between supply, demand, and prices that underpins market dynamics. General Equilibrium (GE) theory, a neoclassical milestone, examines the interconnectedness of markets, revealing the complex interplay of economic forces. This chapter refers to the evolution and principles of GE, from its inception by Léon Walras to the formalization by Arrow and Debreu, highlighting its role in shaping modern Economics. The Walrasian Auctioneer, zero-profit firms, and market clearing are pivotal elements within the framework. The equilibrium equation, underpinned by consumer utility and firm profit maximization, captures the essence of GE. Through theoretical and mathematical lenses, GE offers a mathematical view of economic systems, guiding policy decisions and shedding light on market efficiency. The chapter also discusses the challenges and extensions of GE showcasing its enduring relevance and impact on economic theory and practice.