What are the welfare consequences of general equilibrium reg

What are the welfare consequences of general equilibrium? regarding to law and economics

Solution

Genral equilibrium exists when there is an interrelationship among all parts of the economy. In this thoery it is assumed that all prices are in equilibrium; where in each consumer spends his given income in a manner that yields them the utmost satisfaction. Further, all firms in each industry are in equilib­rium at all prices and output; and the supply and demand for productive resources (factors of produc­tion) are equal at equilibrium prices.With these assumptions general equilibrium can further be stated as a state where the demand for every commodity and service is equal to the supply for it.

Welfare consequences of general equilibrium are as follows:

1. There will be free flow of money in the market.

2. Consumers will be spending their money in purchases without any hesitation.

3. Producers will be able to gain profits.

4. There will be a contant demand and supply.

5. There will be full employment of labor and other resources.

6.Tecniques of production need not be changed as production can be maintained at the present level.

7. It will ensure perfect harmony in the market conditions and the economy.

8. Consumer income will be constant.

9. Consumer habit can be analysed and studied easily.

10. There will always be constant returns to scale.

These are some of the welfare consequences of general equilibrium with respect to law and economics.