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Walrasian General Equilibrium

The concept of Walrasian General Equilibrium, also known as the “Wasserian” or “Wasserian” equilibrium, is a theoretical model that attempts to describe a stable state in economic systems. This concept was first introduced by economist Ludwig von Wascher in the 1960s and has since been extensively studied and applied to various fields of economics, finance, and policy analysis.

In essence, Walrasian General Equilibrium is a model that attempts to describe a stable state in economic systems where the economy exhibits a consistent behavior over time, characterized by:

  1. Unstable equilibrium: The economy has reached an unsteady point or a state of equilibrium, where it is unable to respond to shocks or changes in its environment.
  2. Consistency with the law of supply and demand: The economy’s behavior is consistent with the laws of supply and demand, which are stable under certain conditions (e.g., high unemployment rates).
  3. No sudden shocks or reversals: The economy does not experience sudden shocks or reversals in its behavior, as long as it has a stable equilibrium over time.
  4. Consistency with the law of supply and demand for other economic agents: The economy exhibits consistency with the laws of supply and demand for other economic agents (e.g., households, firms) that are also stable under certain conditions (e.g., high or low unemployment rates).
  5. No fluctuations in the economy’s behavior over time: The economy does not exhibit fluctuations in its behavior over time, as long as it has a stable equilibrium.
  6. Consistency with the law of supply and demand for other economic agents that are also stable under certain conditions (e.g., households or firms): The economy exhibits consistency with the laws of supply and demand for other economic agents that are also stable under certain conditions (e.g., high or low unemployment rates).

The concept of Walrasian General Equilibrium is often used to describe various economic systems, including:

  1. Monetary systems: It can be applied to explain why central banks have been in operation for decades and still exhibit stability despite fluctuations in the economy’s behavior (e.g., the Federal Reserve in the United States).
  2. Financial markets: It can be used to describe why financial markets, such as stock markets or bond markets, exhibit consistency with the law of supply and demand for other economic agents that are also stable under certain conditions (e.g., high or low unemployment rates).
  3. Economic systems with a strong institutional framework: It can be applied to explain why economies with a strong institutional framework, such as those in developed countries, exhibit stability despite fluctuations in the economy’s behavior (e.g., the United States has a strong institutional framework that is stable despite economic shocks and changes in policy).
  4. Economic systems with a strong institutional framework: It can be applied to explain why economies with a strong institutional framework, such as those in developed countries, exhibit stability despite fluctuations in their economy’s behavior (e.g., the United States has a strong institutional framework that is stable despite economic shocks and changes in policy).
  5. Economic systems with a strong institutional framework: It can be applied to explain why economies with a strong institutional framework, such as those in developed countries, exhibit stability despite fluctuations in their economy’s behavior (e.g., the United States has a strong institutional framework that is stable despite economic shocks and changes in policy).

The concept of Walrasian General Equilibrium is widely used in various fields of economics, finance, and policy analysis to explain why economies are able to exhibit consistent behavior over time, characterized by stability under certain conditions. It provides a useful framework for understanding the dynamics of economic systems and their interactions with each other and with external shocks or changes in the environment.

See also

Separating and Pooling Equilibria

Matching Theory in Labor and Marriage Markets

Menu Costs and Sticky Prices

Coase Theorem

Dynamic Programming and Bellman Equation