LEON WALRAS I. INTRODUCTION A. an economics professor at the University of Lausanne 1.

dominant thinking in economics was in Britain it was difficult to affect the rest of the profession 2. Walras was not able to develop disciples B. August Walras encouraged his son to pursue economics with a particular emphasis on math C. simultaneously with Jevons and Menger, Leon Walras developed his idea on marginal utility is considered one of the founders of the marginal revolution II. DIFFERENCES IN METHOD A. Marshall utilized partial-equilibrium analysis as the method for looking into selected markets he also never denied the accuracy of the Walrasian system B. Walras adamantly criticized Marshall and his errors 1. did not oppose the use of demand curves for particular goods BUT he objected to the use of these IF they excluded the interdependence of utility and demand for all goods 2. rejected Dupuits identification of MU with demand 3. declared Marshall as the great white elephant of political economy C. What could have accounted for this antagonism? 1. Marshall and Walras developed their analyses for two very different audiences a. Marshall addressing the intelligent lay and the businessinclined person b. Walras addressing his professional colleagues III. GENERAL EQUILIBRIUM THEORY/ANALYSIS Walras biggest contribution to economics A. The goal was to attempt to show how a whole economy with many goods fits together and reaches an equilibrium he did not succeed but was able to take major first steps: 1. he built a system of simultaneous equations to describe his hypothetical economy because the number of equations equaled the number of unknowns, the system could be solved to give the equilibrium prices and quantities of commodities. a. showing how price and quantity were uniquely determined for each commodity is considered one of the prime achievements of Walras in economic analysis ** BUT Walras was aware that just because his system of equations can be solved mathematically doesnt mean that the real world can reach equilibrium 2. stimulate an artificial market process that would get the system towards equilibrium tatonnement (means groping in French) a. was a trial and error process in which a price was called out and people in the market said how much they were willing to demand or supply at the price thus, prices would grope towards equilibrium

b. to keep the equilibrium position constant as price gropes towards it, the assumption of tatonnement was that no actual exchange was made until equilibrium was reached B. Partial Equilibrium vs. General Equilibrium 1. for both economists, equilibrium price and quantity are determined by the intersection of the demand function and the supply function ( or the offer curve as Walras called it) 2. the writers differed in the determinants of demand and supply and the mechanics of market equilibrium a. Marshalls demand and supply functions are made with the ceteris paribus assumption b. Walras was interested in the interdependencies that exist between markets interrelations exist because the valuation process occurs in all markets simultaneously IV. MARKET ADJUSTMENT MECHANISM: DIFFERENCES IN WALRAS AND MARSHALL A. Price Adjustments vs. Quantity Adjustments 1. Walras regarded price as the adjusting variable Qd = f(p) Qs = f(p) 2.Marshall saw it the other way around Dd = f(q) Ds = f(q) V. WALRAS EXCESS-DEMAND FUNCTION A. Walras believed that anyone who has not maximized his satisfaction will have excess demand for some goods and excess supplies of others the object of exchange is to maximize satisfaction, which meant disposing of excess supplies in order to eliminate excess demands every act of exchange influences the values of all goods in the economic system and than an interdependence exists between the entire system of production and consumption B. Stability can be described in terms of a concept of excess demand 1. excess demands the difference between Qd and Qs at any given price ED = (Qd Qs) 2. a negative excess demand can be regarded as a positive excess supply 3. excess demand is zero at equilibrium price and positive at prices below equilibrium 4. in a Walrasian system, stability is attained when the ED function is negatively-sloped 5. given positively-sloped supply curves and negatively-sloped demand functions, stability for both Walras and Marshall require a negatively-sloped excess demand function