General Equilibrium and Macroeconomic Equilibrium
General equilibrium is different Firer the aggregate Of economic equilibrium. In micro economic aquiline models, the entire revenue product and the equilibrium price of a factor increase or decrease in accordance with its marginal productivity. Given the state of full employment or the available resources, the income shares of the various factors will depend upon their relative marginal products. Similarly. the income shares of the various factors are also governed by thc structure of demand because .the income paid to a factor depends upon value attached by consumers innumerable sets of prices and quantities that are required to formulate these equations. It is a tremendous problem. (iv) It assumes the existence of a unique consistent real set of prices which will simultaneously’ equalize the demand and supplies of all goods and factors. The critics point out that the solution obtained by solving the simultaneous equations may giveanswers which lie in the nomad of imaginary numbers. No economic meaning can be attached, for instance, if the price of any commodity comes’ out to be Hor numbers like that. Thus. the model of general equilibrium cannot be applied unless a unique real solution is obtained from the simultaneous equations. The critics further argue that even if such a solution exists, the price mechanism may 1I0t necessarily converge to it. (v) The general equilibrium analysis is also found to flounder when the theoretical conclusions are juxtaposed with the empirical results. Large-scale unemployment has occurred under everal price mechanisms. For instance, 20 per cent of the labour force was unemployed in the U.K .. the U.S.A., and Germany during the 1930’s. Th . the prescription of general equilibrium analysis that In a free enterprise economy, the price mechanism hall bring about full employment is imply a 111.111. (vi) Last but not least. the general equilibrium analysis falls to the ground its star assumption of perfect competition is contrary to the actual conditionsprevailing in the real world.
Need for a new concept which may not reflect, any strong. economic behaviour, whereas Leon Walras, general equilibrium is concerned with the ‘macro-economics’, which is very essential for governments to undertake and study and, envolve different policy measures, so as to improve the economic condition or to maximise social welfare. A number of studies are carried out in different ways, to achieve this general equilibrium. Marxian equilibrium is quite different from Keynessian ‘effective demand’, Harrods Ga = Gw = Gn a steady growth model equilibrium and the recent lS/LM curve determination of income and output levels etc. In the present world of economic liberalisation and globalisation, in which to a extent the monetarists approach has thrown open the dynanism of economics. General equilibrium is required which should include not only the internal economics but also international economics which now-a-days has been influencing a lot. Own economic policies may not be fruitful in determining only the internal economic levels but also it must takes into account other countries policies, which influence an internal economics as well as your policies and other country’s policies.