General Equilibrium In The Economy

Courses : Intermediate Microeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion General Equilibrium In The Economy General balance in the economy refers to a condition where the supply and demand for all goods and services in an economy have reached a balance point. Under these conditions, there is no shortage or excess of goods and services, so prices are stable and production levels are optimal. General equilibrium refers to a condition in which all markets in the economy are in equilibrium, not just a single market. The concept of general equilibrium was first described by the French economist Leon Walras, who developed the theory of general equilibrium in his book "Elements of Pure Economics". This theory states that the markets in the economy can reach equilibrium only if there is the right price for each traded goods and services. General equilibrium is considered the ultimate goal in macroeconomic models, because it denotes a state in which the economy is running at full capacity and prices are regulated at levels that are acceptable to both producers and consumers. However, general balance is difficult to achieve in practice due to complex changes in economic factors and other factors such as changes in government policies, global economic fluctuations and political turmoil. Some general balance concepts in economics that are commonly studied include: 1. Partial common equilibrium: The concept of partial common equilibrium is used in single market analysis. This concept shows that price and quantity can move simultaneously in a single market when there is a change in one of the factors that affect supply or demand. 2. Limited general equilibrium: The concept of finite general equilibrium refers to the interaction between several related markets. This concept considers how prices and quantities in one market will affect other markets. 3. Overall general equilibrium: The concept of overall general balance is the most broad and complex concept. This concept includes the interactions between all markets in the economy and considers how each market affects the others. The overall general balance includes factors such as interest rates, government spending, unemployment rates, and other economic factors. In practice, general equilibrium is a complex concept and difficult to apply directly in the real world because there are many factors that influence each other in an economy. However, general balances are important in understanding economics and help economists to predict how changes in one sector of the economy will affect other sectors. There are some general conclusions in economics that can be drawn as a summary of the many theories and models that have been discussed. Following are some of them: 1. Supply and Demand: A basic law of economics is that prices will move toward the point where demand equals supply. If the demand is greater than the supply, the price will rise, and vice versa if the supply is greater than the demand, the price will fall. However, other factors such as government regulation, technological change, and monetary and fiscal policies can affect the balance between supply and demand. 2. Profits and Costs: In the long run, companies can only survive if they make a profit. However, profit must be considered in the context of production and selling costs. Companies must consider how much the costs of production and sales are in order to generate a decent profit. 3. Efficiency: Efficiency becomes very important in the economy because it can affect prices and people's welfare. Efficiency can be measured by comparing the output produced with the input used. The higher the level of efficiency, the higher the possibility that prices will be low and people's welfare will be high. 4. Innovation: New innovations and technologies can lead to higher efficiency and improve people's welfare. Companies that successfully develop innovations can have great advantages over their competitors, but can also face great risks. 5. Competition: Competition among firms can encourage innovation and increase efficiency. Strong competition can result in lower prices and higher quality products for consumers. However, too much competition can reduce company profits and can have a negative impact on employee well-being. 6. Role of Government: Governments can influence the economy through fiscal policies (such as taxes and government spending) and monetary policies (such as interest rates). The government can also carry out regulations to promote competition and prevent monopolistic behavior. 7. General Balance: General balance in the economy can be achieved through a combination of the above factors. General balance means that there is harmony between the interests of companies, consumers and society as a whole. The conclusions above can help to understand how markets and economies operate, and how government policies and corporate business strategies can affect the general balance. However, it is important to remember that no one model or theory can fully explain all aspects of economics, and that