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General Equilibrium (New Developments)

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The New Palgrave Dictionary of Economics

Abstract

General equilibrium theory is the theory of mass markets. The foundations of general equilibrium theory were laid in the late 19th and early 20th centuries by Walras and Edgeworth. The modern formulation was conceived in the 1950s by Arrow, Debreu and McKenzie, who also established the fundamental results: existence of competitive equilibrium, Pareto optimality of equilibrium allocations (the First Welfare Theorem), and supportability of Pareto optimal allocations as equilibria with transfers (the Second Welfare Theorem). The ideas of general equilibrium theory are widely used in models of markets of all kinds, including in finance, international trade and macroeconomics.

This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume

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    Zame, W. (2008). General Equilibrium (New Developments). In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_2354-1

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