| Walras' Law |
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Information AboutWalras' Law |
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P'X(P)=0 P>=0 Where P is a price X is an amount vector in an economy with general equilibrium. Walras' law says that there cannot be a one-sided disequilibrium in markets. For example, if the labour market is not in equilibrium because there is excess supply or in other words, unemployment, then there has to be a disequilibrium elswhere that matches it, like excess demand in the goods market. In other words, total excess demand and supply across all markets balance each other out. This is somewhat contrary to the Keynesian thinking that the labour market can be in disequilibrium in a general equilibrium model. |