general equilibrium theory
Quick Summary
General equilibrium theory in economics posits that all economic variables, such as prices and quantities, will simultaneously reach equilibrium across all markets. This concept was significantly developed by Léon Walras, who described the economic system mathematically, showing how demand and supply functions interact in numerous markets to determine equilibrium prices.12
The theory is a cornerstone of modern economics, providing an analytical framework for understanding the entire economic system. It builds upon the marginalist revolution, which replaced the labor theory of value with the marginal utility theory of value, focusing on consumer behavior and the optimal allocation of resources. This approach underlies various economic theories, including those concerning money, capital, and international trade.23
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