Walras’ law
DESCRIPTION
An economic principle of general equilibrium that states that, for a given number of markets, if all but one are observed to be in equilibrium, then the last one must also be in equilibrium because there cannot be a net excess of supply or demand for the goods, including money.
An economic principle of general equilibrium that states that, for a given number of markets, if all but one are observed to be in equilibrium, then the last one must also be in equilibrium because there cannot be a net excess of supply or demand for the goods, including money.
KEY INSIGHTS
Developed by LeonWalras in the late 1800s,Walras’ law says that markets cannot be in a one-sided disequilibrium (with disequibrium being where the quantity demanded is not equal to the quantity supplied at the going price). Thus, the law asserts that if there is disequilibrium in a market such as the labor market, there must also be disequilbrium in another market such as in the market demand for goods.
Developed by LeonWalras in the late 1800s,Walras’ law says that markets cannot be in a one-sided disequilibrium (with disequibrium being where the quantity demanded is not equal to the quantity supplied at the going price). Thus, the law asserts that if there is disequilibrium in a market such as the labor market, there must also be disequilbrium in another market such as in the market demand for goods.
KEYWORDS Economics, general equilibrium
IMPLICATIONS
Marketers seeking to create advanced economic models of markets may benefit from a greater understanding of the principles and concepts associated with Walras’ law. Whether modeling markets where there is a single good or multiple goods, the market equilibrium implications of Walras’ law may provide the modeler with an important basis for subsequent model development that may ultimately assist decision makers in evaluating policies and practices influencing both markets and industries.
Marketers seeking to create advanced economic models of markets may benefit from a greater understanding of the principles and concepts associated with Walras’ law. Whether modeling markets where there is a single good or multiple goods, the market equilibrium implications of Walras’ law may provide the modeler with an important basis for subsequent model development that may ultimately assist decision makers in evaluating policies and practices influencing both markets and industries.
APPLICATION AREAS AND FURTHER READINGS
Marketing Modeling
Berkovec, James (1985). ‘New Car Sales and Used Car Stocks: A Model of the Automobile Market,’ RAND Journal of Economics, 16(2), Summer, 195–214.
Berkovec, James (1985). ‘New Car Sales and Used Car Stocks: A Model of the Automobile Market,’ RAND Journal of Economics, 16(2), Summer, 195–214.
Antras, P. (2005). ‘Incomplete Contracts and the Product Cycle,’ American Economic Review, 95, 1054–1073.
Chambers, Robert G., and Pick, Daniel H. (1994). ‘Marketing Orders as Nontariff Trade Barriers,’ American Journal of Agricultural Economics, 76(1), February, 47–54.
BIBLIOGRAPHY
Pingle, Mark (1994). Walras’ Law, Pareto Efficiency, and Intermediation in Overlapping Generations’ Economies. Ames, Ia.: Dept. of Economics, Iowa State University.
Pingle, Mark (1994). Walras’ Law, Pareto Efficiency, and Intermediation in Overlapping Generations’ Economies. Ames, Ia.: Dept. of Economics, Iowa State University.