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What are the strengths and weaknesses of general equilibrium as an organising concept - Essay Example

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The concept of general equilibrium is considered to be an integral part of theoretical economics. It desires to present a hypothetical model of market equilibrium in the context of economic theory. It acts best in regards to some propositions that can be underlined as follows…
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What are the strengths and weaknesses of general equilibrium as an organising concept
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What are the strengths and weaknesses of general equilibrium as an organising concept

Download file to see previous pages... Firstly the concept of general equilibrium takes into count the entire economy or the holistic economy to reflect its true nature. In regards to the entire or whole economy the general equilibrium attempts to evaluate the demand, supply, and price parameters. The second proposition upon which the theory of general equilibrium rests concerns the markets operating in an economy. In that the theory of general equilibrium in sharp contrast to partial equilibrium endeavours to understand the equilibrium in relation to large number of interactive markets (Balasko, 2011, p.124). Thus where in case of partial equilibrium the price structure prevailing in the economy is studied in regards to a single market the case for general equilibrium on the contrary evaluates the same in regards to large number of markets. The third proposition held by the general equilibrium theory holds that a uniform group of prices prevail in regards to the large number of interactive markets. The price set evaluated in regards to the whole economy is considered to be the main factor that generates equilibrium for the general equilibrium model. In the general equilibrium model the prices held are generally held to be long-term ones and thus the realistic price structure is taken to be a deviation from the equilibrium price structure in case of general equilibrium (Starr, 2011, p.3-4). ...
In the modern theory pertaining to value the theory takes into account certain important propositions. The first proposition is concerned in regards to differentiation of the products in regards to the different localities to where such products are delivered by the producers or manufacturers. The second proposition holds that different products are differentiated based on the time or periods in which they are distributed to the different localities. In the third case the proposition held is in regards to the different contracts which decide both the time and place of transfer of products from one owner to another. The three propositions can be combined to form the new general equilibrium model propounded by the modern economists (Ginsburgh and Keyzer, 2002, p.3-4). General Equilibrium as a concept propounded by economist Leon Walras thus tends to avoid a chaotic situation in an economy and in contrast helps the economy to form a balancing position. In that Walras tends to find a harmony behind the different economic agents to help the economy attain the required uniformity. The harmony behind the different economic agents can be derived on the basis of a suitable interdependence which would help in blending the different economic factors to one another. Further the general equilibrium model also proceeds in finding out different price sets that would in turn trigger the economy to find a situation of stability for itself (Krauss and Johnson, 2006, p.14). Observation shows that such harmonious or uniform position gets dismantled if the economic agents working in an economy fail to attain the required resources or commodities that would help them to attain or sustain the due stability. Hence optimum level of active resources is required to be ...Download file to see next pagesRead More
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