Econometrica: Apr 1977, Volume 45, Issue 3
Hal R. VarianThis paper presents a general equilibrium model which exhibits non-Walrasian equilibria. In Walrasian models economic agents act only on the basis of relative prices. In this model agents take quantity signals into account as well: firms maximize profits subject to a constraint on expected sales, and consumers maximize utility subject to a constraint on realized income. With such a specification it is shown that a non-Walrasian equilibrium will generally exist. Furthermore, the non-Walrasian equilibrium will be a stable equilibrium of an appropriate dynamical system while the Walrasian equilibrium will be unstable.
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