Body of analysis examining the balance of interrelated variables of an economy and their tendency to resist change.
Classical economic theory, outlined by Scottish economist Adam Smith (1723-1790) and English economist David Ricardo (1772-1823), regarded market prices as fluctuating around the natural price (which can be considered a central price towards which market prices tend). Another feature of the classical approach was the subsistence theory of wages which viewed expansions and contractions of a population as forces of equilibrium which make the subsistence wage rate the long-run equilibrium rate.
The partial equilibrium analysis outlined by English economist Alfred Marshall (1842-1924) is central to the neoclassical approach to equilibrium theory. It demonstrated the continuous nature of economic change. Marshall examined ‘slices’ of time with a range of new tools such as substitution, the elasticity coefficient, the representative firm, consumer surplus, quasi-rent, economies of scale, and the long and short run.
The French economist Leon Walras (1834-1910) developed a theory of general equilibrium, in which all the markets of an economy are studied, and in which all supplies, prices and outputs of goods and factors are determined simultaneously.
Also see: general equilibrium theory, partial equilibrium theory, Walras’s stability, Say’s law, internal and external balance, fundamental disequilibrium, law of markets, classical macroeconomic model, arrow-debreu model, cobweb theory, theory of the core, catastrophe theory
A Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London, 1776);
A Marshall, Principles of Economics (London, 1890);
L Walras, Elements d’économie politique pure (Lausanne, 1876);
P A Samuelson, Foundations of Economic Analysis (New York, 1965)