General equilibrium theory

General equilibrium theory studies how prices and quantities across interconnected markets can jointly balance supply and demand, given consumers, firms, resources, and market rules.

Walrasian equilibrium: An allocation and price system in which every market clears and consumers and firms optimize. It is the central equilibrium concept that general-equilibrium models seek to establish.
Utility maximization: The choice of a most-preferred feasible bundle according to a consumer's preferences. Consumer demand in equilibrium comes from optimizing choices under budget constraints.
Arrow–Debreu model: A mathematical model of competitive equilibrium with dated, contingent commodities and specified preferences and technologies. It provides a comprehensive framework for proving equilibrium and welfare results.
Partial equilibrium: The analysis of a market while treating conditions in other markets as fixed. It deliberately omits the cross-market feedback that defines general-equilibrium analysis.
Léon Walras: A French-Swiss economist who developed an early mathematical account of markets clearing simultaneously. His system of simultaneous equations became a foundation for general-equilibrium analysis.
Excess demand: The difference between the quantity demanded and the quantity supplied at given prices. Price adjustment is often modeled as a response to excess demand across markets.
Production possibility frontier: The boundary of output combinations an economy can produce with available resources and technology. It captures the economy-wide scarcity that firms and consumers face.
Arrow–Debreu theorem: An existence result showing that competitive equilibrium exists under conditions such as continuity, convexity, and suitable resource availability. It establishes that a coherent price system can exist across many interdependent markets.
Monopolistic competition: A market structure with many firms selling differentiated products and possessing limited price-setting power. It replaces the price-taking assumption with differentiated products and market power.
Francis Ysidro Edgeworth: A nineteenth-century economist whose work developed mathematical theories of exchange and contract. His exchange diagrams and contract curve illuminate equilibrium in small economies.

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