General Equilibrium Theory
The term general equilibrium theory
refers to the analysis of the conditions which are necessary for an economy to be
in 'general equilibrium' or in which 'markets are all cleared'. It is thus
analysis which focuses on equilibrium (taken to be the same thing as 'clearing'
for the purpose of this analysis - although it is quite possible to have
equilibrium without clearing)and which explicitly takes into account all the
simultaneous interactions and interdependencies that exist between all the
different markets in the economy (or more precisely, in all the markets
included in the model of the economy).
© Department of Economics, University of
Melbourne
Created: Last modified: 20 June 2000