Walras's law

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.

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Walras's law

the proposition that the total value of goods demanded in an economy (prices times quantities demanded) is always identically equal to the total value of goods supplied (prices times quantities supplied). This situation can occur only in a BARTER economy or an economy that uses some form of MONEY for transactions where all money is immediately used for exchange. In an economy that also uses money as a store of value, it is conceivable that the demand for and supply of money does not equate to the demand for and supply of goods, that is, people may SAVE (or overspend). See also SAY's LAW.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005