L. Walras Concept of Equilibrium Assignment Example | Topics and Well Written Essays - 2750 words

L. Walras invention of Equilibrium - Assignment ExamplePrices be quoted in the market for severally commodity at each instant of the trading process b. The traders are price takers and they behave competitively i.e. the existence of perfect contender and c. For any commodity, any transaction is not allowed to take place out of the counterbalance. According to Walras (1874), considering any special(prenominal) market, if all other markets in an economy are in equilibrium, then that specific market moldiness also be in equilibrium. Also, the sum of all excess pick outs and excess supplies (which have both demonstrable and negative values) must be equal to zero. The equilibrium is attained through a process called seek in which each agent calculates its demand for a particular commodity and submits it to an auctioneer. This auctioneer matches the supply and demand of the commodities and tries to reach an equilibrium price. Trading stops at the point where the demand and supply for all the commodities with supreme prices equate and demand for goods with a price of zero does not exceed their supply (Walras, 1954). At this point, equilibrium is achieved by the process of Groping. Answer 2 The dickens actors i.e. households and firms both face the problem of scarcity and choice. In the case of households, they attempt to spend their curious resources, i.e. income, on those goods and in such a way that gives them the maximal utility. They have to bear the chance cost when they forgo the returns of one commodity to avail the benefit of another. According to the law of fall marginal utility, as a person consumes more and more units of a commodity, he obtains less and less amount of satisfaction from every additional unit that he consumes. A point comes when the additional utility even becomes negative. For instance, over-consumption of drinking water is harmful to health According to the formula the total utility is maximized when utilities obtained from each of the commodities consumed become equal. (Samuelson, 1939) The firms face the same problem and they want to utilize their scarce resources, i.e. factors of production, in such a way that maximizes their profits. Just like the households, they too have to bear the opportunity cost when they forgo the usage of one factor to avail the benefit of another factor. The law of diminishing returns is similar to the working of the law of diminishing utility according to which as more and more units of a factor are employed with other factors remaining constant, the marginal product diminishes. Similarly, a point comes when the marginal product becomes negative. For instance, a certain number of units of labor undersurface produce effects on a unit of land. More than enough units cause disturbance and disharmony in the working environment. The principle can also be applied to firms. The total product is maximized when marginal products of all the factors employed become equal. (Samuelso n, 1939) Therefore, the two actors have to undergo the same processes to achieve their respective objectives. Answer 3 In Marshallian long-period equilibrium, the economies and diseconomies of scale sterilize whether an industry will be operating under increasing, decreasing or constant returns to scale. When the economies and diseconomies of scale are equal, they cancel each other and there is no net effect on the industry.