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Walras' Law |
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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. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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No references found | With ten equations at hand, one is redundant according to Walras's law, leaving nine independent equations to solve for nine variables--two for the quantity of labor in each industry, two for the quantity of capital used in each industry, one for the total amount of watches and wheat, the real wage rate, the real return on capital, and the relative price of the two goods (Burmeister and Dorbell, 1970. The new release of the book has already stimulated commentaries and discussions on this claim, as reflected in Van Den Hauwe's (2008) criticism of both this interpretation of Walras's Law and its application in support of free banking as a stabilizing institution. What economists three generations later were to call Walras's Law is the principle that any market in which people are planning to buy more than is for sale must be counterbalanced by a market or markets in which people are planning to buy less. |
Walras's Law |
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