General equilibrium theory

A general equilibrium model in economics is a microeconomic model that represents an economy as a whole and a macroeconomic equilibrium studied. This leads, in particular, without the construction of market from, for example, in contrast to the generalized Partialmarktmodell. It is an approach to explain exchange, production, consumption and prices in an economy. Large parts of today's micro-economics are based on the general equilibrium theory.

• 2.1 Basic General equilibrium models
• 2.2 Evolved General equilibrium models
• 2.3 Overlapping generations, uncertainty, imperfect information

General

Content

A general equilibrium model is a hypothetical economy in which all consumers have complete, reflexive and transitive preferences over their consumption possibility sets, so are rational. The model is the maximum micro -depth description of an economy and describes how consumers and producers, given a certain initial endowment, simultaneously choose consumption and production. The aim of this model is to examine general allocations and the equilibrium of an economy without resorting to the concept of Partialmärkten.

The model is most easily using the example of Edgeworth box explain ( a pure exchange economy ). There are a fixed number of economic agents, which are provided with a certain initial endowment of goods and they can communicate to each other. If every good is traded at a given relative price ( exchange ratio of goods) on the market, every agent will offer as much or ask that it optimizes its benefits. This will generally result in over-or under Deals for the individual product markets. The central question of existence of general equilibrium theory is now whether there is price systems so that all markets are cleared, ie that as much is offered by a crop is as demanded. Next you want to know whether the natural market forces move the economy towards a general equilibrium. This is the so-called stability of the equilibrium. This model can be extended to production, insecurity or other components.

It is therefore important to find a comprehensive understanding of a market-based economy through an approach which is directed from bottom to top: Start with all individuals and companies whose preferences and production possibilities, and considered the resulting interaction with freely available information and rational behavior. In contrast to the macro-economy actors are not grouped into different units to model the relationships of these units to each other, but treats each individual separately.

History

As a first precursor of this theory, the French physiocrats and classical political economy of Adam Smith and David Ricardo are called (with restrictions).

The first attempt in neoclassical theory to develop a comprehensive model for the determination of relative prices in an economy comes from Léon Walras, the founder of the Lausanne school. He wanted to do from the classical political economy of Adam Smith and David Ricardo an "exact science." Therefore, he tried to describe mathematically the economy. Abraham Wald and later Maurice Allais, Kenneth Arrow and Gerard Debreu described the existence and stability of a general equilibrium for a market economy with private property. Arrow, Allais and Debreu were donated by the Bank of Sweden in memory of Alfred Nobel Prize in Economics for their work on general equilibrium theory ( AGT).

General equilibrium models

Basic general equilibrium models

These include in particular the Edgeworth box model, in which there is no production and only two consumers who have to agree on an allocation for a given initial endowment, and the Robinson Crusoe model in which there are a consumer and a company and the balance is examined. It should be noted that there is no market power in these simple general equilibrium models. So make sure you not really an economy with a single consumer is, but with only one " type " consumer. So an economy with many consumers who are all the same, or at the Edgeworth box model two " types" of consumers, who are all equal.

Evolved General equilibrium models

The first general equilibrium models developed by Léon Walras and is called Walrasianisches equilibrium model. This term is also often used as a generic term for all general equilibrium models, but specifically describes only the basic model of Léon Walras. A very common and well-known development is the Arrow- Debreu equilibrium model in which there are as many different consumers and producers, who consume even any goods quality and availability with respect to time and place. In addition, there are also private ownership of companies and resources, and neither benefit nor profit maximization problems have unique solutions. Thus, the Arrow- Debreu equilibrium model is a relatively general and far-reaching development of the basic Walrasian equilibrium model.

The general- equilibrium models typically investigated problems are: existence ( " Is there ever a state that satisfies the conditions of general equilibrium ?"), Efficiency ( "Is there a condition that is better compared to the observed equilibrium some consumers without harming others? " ), uniqueness ( " Is there only one or more different states of equilibrium " ), and stability ( " Is there a mechanism to - for example through price adjustments - in case of deviations from equilibrium leads back to this " ).

Overlapping generations, uncertainty, imperfect information

Building on the basic general equilibrium models, there are still many extensions, for example, where uncertainty, overlapping generations (OLG ) model, asymmetric information or other market frictions are inserted.

Other equilibrium models

• Partialmarktmodell
• Generalized Partialmarktmodell
• Edgeworth box model
• Robinson Crusoe model
• Walrasianisches general Gelichgewichtsmodell
• Arrow- Debreu equilibrium model