General Equilibrium

Unlike partial equilibrium theory, general equilibrium theory treats as constant only non-economic influences and embraces all sales and purchases of all agents involved in exchanges. It implies that all subsets of agents are in equilibrium and that all individual agents are in equilibrium. The development of a formal general equilibrium theory in mathematical terms was initiated in the 19th century by Walras, who moved from a model of an exchange economy to an equilibrium with production. It was completed in the 1950s by McKenzie, who formalized Walrasian theory, and by Arrow and Debreu, who formalized Hicksian theory.