Competitive equilibrium

Topic

Competitive equilibrium, also known as Walrasian equilibrium, is a foundational concept in economic theory that describes a state where market prices adjust so that the quantity of goods supplied by producers equals the quantity demanded by consumers. Introduced formally by Kenneth Arrow and Gérard Debreu in 1951, it assumes a highly competitive environment where individual traders are price-takers and cannot influence market prices on their own. This equilibrium serves as a primary benchmark for efficiency in economic analysis, particularly under the First and Second Welfare Theorems.