Page 378 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-26: General Equilibrium Theory

1. Existence of General Equilibrium Notes

The existence of General Equilibrium relates to the behaviour of sellers and buyers and how it affects
the demand and supply curves. When demand and supply curves is equal on a positive price, this
is equilibrium. This price is called Equilibrium Price. The demand and supply on this price is called
Equilibrium Quantity. There is neither excess demand nor excess supply on equilibrium price.
Symbolically,

E = Q – Q = 0
S
D
D
Where E is excess price; Q is quantity of demand and Q is quantity of supply. The excess price is
D D S
that point where the demand curve intersects supply curve in a specific price. These curves should
intersect each other in a positive price for existing of general equilibrium. The condition of general
equilibrium is—
1. In this price, consumer gets full satisfaction as well as producer gets profit maximization.
2. All markets get empty on this price means the products are equally supplied and demanded in a
market in a positive price.

Self Assessment

Fill in the blanks:
1. Problems of Existence, Stability and Uniqueness of General Equilibrium are included in .......................... .
analysis.
2. The existence of General Equilibrium relates to the behaviour of sellers and ........................... .
3. The quantity of demand and supply in a price is called .......................... .
The Fig. 26.1 represents the general equilibrium, when the demand curve D intersects supply curve S
on point E and OP is fixed price which is positive. This price equalizes the OQ quantity of demand and
supply in market. This figure can be applied on market factor and product factor where the equilibrium
comes at a time.

Fig. 26.1

Price S

P E

D
O
Q
Quantity

According to Airo and Debro, when in a perfect competitive market, the difference factor does not
found then there general equilibrium exists.

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