Market Equilibrium (1)
In Chap. 2, we considered how firms supply the consumables and intermediate goods and demand factors of production and intermediate goods, when prices in the market are given. Chapter 3 was devoted to show how consumers demand the consumables and supply factors of production, taking market prices as given. Aggregate demand for each good and aggregate supply of each good are, therefore, functions of market prices which are taken by competitive firms and consumers as given and unchanged. Thesemarket prices are, then, to be determined so as to equate the aggregate demand and aggregate supply of all goods. The general equilibrium of a competitive economy is defined as a set of prices which clears all the markets.