Consumer equilibrium

General Equilibrium Theory

• Attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets
• Seeks to prove that the interaction of demand and supply will result in an overall general equilibrium

Contrast with Partial Equilibrium Theory

• General equilibrium theory contrasts with partial equilibrium theory, which analyzes a specific part of an economy
• In partial equilibrium theory, other factors are held constant, whereas in general equilibrium theory, constant influences are considered noneconomic

Noneconomic Influences

• Constant influences are considered to be noneconomic, or beyond the scope of economic analysis
• Noneconomic influences may change given changes in economic factors
• Prediction accuracy of an equilibrium model may depend on the independence of economic factors from noneconomic ones

General Equilibrium Model

• Studies economies using the model of equilibrium pricing
• Seeks to determine in which circumstances the assumptions of general equilibrium will hold