Page 27 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes
Fig. 2.7

Demand Market Supply
Factor
Flowof Productive Resources

Producers Consumers
Product Demand
Flowof Goods and Services
Market
Supply

Self Assessment

State whether the following statements are True/False:
9. The assumption of stable and unstable equilibrium depends upon constant equilibrium.
10. Static equilibrium is the equilibrium which maintains itself before a given time of frame.
11. In Economics, equilibrium states the changes in motion.
12. The economics of Marshall relate to the study of maximum partial equilibrium analysis.

Its Limitations

There are so many limitations in economical general equilibrium:
First, it depends on much unreal recognition which is opposite to the challenges in real world. Full
contest, which is the base of this equilibrium, is false.
Second, this analysis is static. In this analysis, all consumers and producers, without any delay of
time, consume and produce products in a daily basis. Their interest and likes are remaining same
and their economical decision fully depend on each other. In fact, this never happens. Consumer and
producer never think like this and never work in a single type. Likes and interests always change.
The measurement of interests are never same and two interests are never same to owe. Thus the cost
of production differs for every producer. Because the interest always changes, so the motion stops at
general equilibrium and it always a desire to get it.
Lastly Prof. Stinger votes that, “General equilibrium is a false concept. None economical analysis
is normal which thinks on equilibrium studies rather than unique equilibrium studies, but it never
fulfils. Apart from this, if the analysis is general, the outcome will be more general rather than
definite.”

Uses of General Equilibrium Analysis

There are so many benefits of General Equilibrium Analysis:
1. A picture of economy’s equilibrium: It produces the picture of an economical equilibrium of
private company, where the consumer gets maximum satisfaction and the producer gets maximum
benefits. There is no loss of services. Everyone gets full employment. There is maximum economical

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