GENERAL EQUILIBRIUM
SUPPLY AND DEMAND
Walras began by focusing on
how exchanges worked - how
the prices of goods, the quantity
of goods, and the demand for
goods interact. In other words,
he was trying to pin down just
how supply and demand tally. He
believed that the value of
something for sale depends
essentially on its rarity. He began
to construct mathematical
models to describe the
relationship between supply and
demand. These revealed that as
price escalates, demand falls and
supply climbs. Where demand
and supply match, the market is
in a state of equilibrium or
balance.
GENERAL EQUILIBRIUM
To illustrate this equilibrium,
imagine that today the current
market price of chickenjoy is
₱150. In a local market, Jollibee
has 100 chicken joys for which
they want for ₱150. If 100
buyers visit the market, each
willing to buy ₱150 for chicken
joy, the market for chickenjoy is
in equilibrium, because the
supply and demand are perfectly
&
MARGINALISM
Balanced with no shortages or surpluses. Walras wanted to apply the idea
of equilibrium to the whole economy in order to create a theory of
equilibrium. This was based on an assumption that when goods are in
surplus in one area, the price must be “too high”, there must be another
where prices are “too low”, causing a surplus in the higher-priced market.
Leon Walras
Shortages of supply in one
area of the economy creates
Was born in Normandy, France,
surpluses of supply in 1834. As a young man, he was
elsewhere captivated by bohemian Paris,
but his dad persuaded him that
one romantic taks of the future
Where there are shortages, When there are surpluses, was to make economics a
price rise price fall science. He became a
economics professor in 1870. It
was there he developed his
theory of general equilibrium.
As price rise, demand falls As price fall, demand rises
and supply rises, and supply falls,
Wa l r a s b e l i eve d t h a t t h e
eliminating shortage eliminating surplus organisation of society was a
matter of “art” outside the
scientific realm of economics.
Economies as a whole tend
towards equilibrium as Key works
long as they are free to do 1874-77 Elements of Pure
so Economics
1896 Studies in Social
Economics
1898 Studies in Applied
Economics
A system of free markets is
stable
By Almonte & Sullivan

Marginalism generally includes
the study of marginal theories and
relationships within economics. The
key focus of marginalism is how much
extra use is gained from incremental
increases in the quantity of goods
created, sold, etc. and how these
measures relate to consumer choice
and demand.
Marginalism covers such topics
as marginal utility, marginal gain,
marginal rates of substitution, and
opportunity costs, within the context
of consumers making rational choices
in a market with known prices. These
areas can all be thought of as popular
schools of thought surrounding
financial and economic incentives.
The idea of marginalism and its
use in establishing market prices, as
well as supply and demand patterns,
was popularized by British economist
Alfred Marshall in a publication
dating back to 1890.
Marginalism by Almonte & Sullivan
M a rg i n a l i s m i s s o m e t i m e s
criticized as one of the "fuzzier" areas
of economics, as much of what is
proposed is hard to accurately
measure, such as an individual
consumers' marginal utility. Also,
marginalism relies on the assumption
of (near) perfect markets, which do
not exist in the practical world. Still,
the core ideas of marginalism are
generally accepted by most economic
schools of thought and are still used
by businesses and consumers to make
choices and substitute goods.
Modern marginalism approaches
now include the effects of psychology
or those areas that now encompass
behavioral economics. Reconciling
neoclassic economic principles and
marginalism with the evolving body of
behavioral economics is one of the
e xc i t i n g e m e rg i n g a re a s o f
contemporary economics.