Walras' Law


Also found in: Wikipedia.

Walras' Law

The principle that, if all markets for all goods and services in an economy are balanced, then the market for a specific good or service must also be balanced. Walras' law is based on the idea that excess demand and supply in an economy must add to zero. Thus, if there is no excess demand or supply elsewhere in an economy, then there can be no excess in a given market. Walras' law contradicts the Keynesian notion that involuntary unemployment can exist when an economy is otherwise in equilibrium because, according to the law, the labor market must itself be balanced. Critics of the law maintain that it does not consider financial markets and their effect on the markets for goods and services.
Mentioned in ?
References in periodicals archive ?
Because we 'know' that the tfitonnement, in its presentation as a set of simultaneous autonomous differential equations for the multimarket system, will lead globally asymptotically to an equilibrium if Walras' law holds, if the system is continuously differentiable, and homogeneous in prices and income, and gross substitutability prevails, it is hard to disconnect Allais' argument from later proofs.
But, this event allows us to attack the issue of whether it is possible to produce an alternative to Walras' Law, which has some similarity in appearance, but which produces much different results in application.
As it is finding in any course note in Economics, Walras' Law states that a consumer always spends his entire budget, because the individual is tempted rather to consume more than to consume less when it comes to satisfying his own needs:
He also estimated the value of one variable from what is called Walras' Law.
The monetary approach insists that "when one market is eliminated from a general equilibrium model by Walras' law, the behavioral specifications for the included markets must not be such as to imply a specification for the excluded market that would appear unreasonable if it were made explicit.
Walras' law is an example of a law that is true by definition: the total payments made to factors of production will equal the total value of the goods sold.
Free Banking, the Real-Balance Effect, and Walras' Law," available at http://papers.
From the budget constraint equations (2), by rearranging terms and summing across consumers, we get the so-called Walras' Law, that is:
Since there is only one other market, the resource market, it must also clear by Walras' law.
Correspondingly, there are two dependent relationships since Walras' law holds both for the transactions during the period and for the transactions with payments at the end of the period.
A fortiori, Walras' law will not be satisfied by effective demand.
The only way that Walras' Law could hold under such an assumption would be for the IS and LB curves to be coincident, implying that the economy has no stable equilibrium [Patinkin, 1965, pp.