General equilibrium
Topic: Markets, Equilibrium and Government Intervention · NCERT: Class 12, Ch 1 "Introduction (Macroeconomics)"
Meaning
General equilibrium is a state in which demand equals supply in every market of the economy at the same time. Markets are linked, so a change in one market (say, wages) affects many others (say, the demand for cloth). The idea is linked to the economist Léon Walras. It is the closest that microeconomics comes to macroeconomics, which studies the economy as a whole.
Example
Suppose the wheat, labour and cloth markets have all cleared at once, with every price such that nothing is left unsold and no buyer is left unserved. That state is general equilibrium.
Don't confuse with
- Partial equilibrium: studies one market at a time and assumes other markets stay unchanged, like the wheat market in NCERT Class 12. General equilibrium studies all markets together.
Related concepts
- Market equilibrium
- Equilibrium price
- Equilibrium quantity
- Excess supply
- Invisible hand
- Market forces
- Relative prices