General Equilibrium

Lecture slides for the following: geslides.pdf

Lesson Plan


Introduce the gist of general equilibrium theory sufficient to contribute to a history of thought approach to financial instability.


  1. 7 Min Class participation review
    1. Smith
    2. People are naturally inclined to truck and barter, to higgle and haggle.
    3. Nassau Senior
    4. if you provide subsistence to workers, they will shirk. If they can't find work, let them migrate.
    5. John Stuart Mill
    6. favors central planning, promotes thinking in terms of utility.
    7. Hayek
    8. The prices system allows the man on the street corner to economize on knowledge, do what is computationally beyond the planner.
    9. Robbins
    10. Economics is the allocation of scarce resources among competing needs.
  2. 15 min Walrasian GE
    1. 5 min intro
    2. Formalizing this takes some math.
      • What is equilibrium in chemistry?
      • Why is it so hard to teach?
    3. 5 min participation exercise on excess demand and interdependent markets
    4. Will numeraire good come up?
    5. 5 min simulation
    6. Resource: Do only the simplest case in General Equilibrium Simulations. In section 1 of the documentation, read only Hoseholds and Firms. Read section 2 to run on your own.
  3. 3 min Computable GE
  4. Scarf's house and ternary plots.
    Resource: Read bio of Herbert Scarf as interested. Under the section Work Read 7, particularly the 'house' algorithm, perhaps play the linked atropos game.
  5. 25 min Complete Markets (shrink/skip to 5 minutes if needed)
    1. 2 min the spirit of the 90s
    2. 2 min forward contracts
    3. spanning and unattainable bundle example
    4. Resource: Read An Introduction to Complete Markets
    up to p. 35. Skip the discussion in terms of horse racing, unless you are a gambler or otherwise find that terminology illuminating. See the conclusion after the box on p. 36. Enjoy the box on linear algebra if you like, then choose between incomplete markets described in horse race terms or pick up on p. 42 in economic terms with 'Some Economic Applications' up to the 'Futures and Risk Shifting' section on 46, then skip to the conclusion. If you don't have time, just read the conclusion.
  6. Conclusion:


General Equilibrium Simulation
Computable General Equilibrium
Complete Markets
Critical Appraisal

Lecture slides for the above.
Lecture slides on models in economics.