The classical general equilibrium model aims to describe the economy by aggregating the behavior of individuals and firms. Note that the classical general equilibrium model is unrelated to classical economics, and was instead developed within neoclassical economics beginning in the late 19th century.
In the model, the individual is assumed to be the basic unit of analysis and these individuals, both workers and employers, will make choices that reflect their unique tastes, objectives, and preferences. It is assumed that individuals' wants typically exceed their ability to satisfy them (hence scarcity of goods and time). It is further assumed that individuals will eventually experience diminishing marginal utility. Finally, wages and prices are assumed to be elastic (they move up and down freely). The classical model assumes that traditional supply and demand analysis is the best approach to understanding the labor market. The functions that follow are aggregate functions that can be thought of as the summation of all the individual participants in the market.
Read more about Classical General Equilibrium Model: Labor Demand, Labour Supply, Aggregate Demand, Monetary Market, Real Market
Famous quotes containing the words classical, general, equilibrium and/or model:
“Culture is a sham if it is only a sort of Gothic front put on an iron building—like Tower Bridge—or a classical front put on a steel frame—like the Daily Telegraph building in Fleet Street. Culture, if it is to be a real thing and a holy thing, must be the product of what we actually do for a living—not something added, like sugar on a pill.”
—Eric Gill (1882–1940)
“Towards him they bend
With awful reverence prone; and as a God
Extoll him equal to the highest in Heav’n:
Nor fail’d they to express how much they prais’d,
That for the general safety he despis’d
His own: for neither do the Spirits damn’d
Loose all thir vertue; lest bad men should boast
Thir specious deeds on earth, which glory excites,
Or close ambition varnisht o’er with zeal.”
—John Milton (1608–1674)
“They who feel cannot keep their minds in the equilibrium of a pair of scales: fear and hope have no equiponderant weights.”
—Horace Walpole (1717–1797)
“The Battle of Waterloo is a work of art with tension and drama with its unceasing change from hope to fear and back again, change which suddenly dissolves into a moment of extreme catastrophe, a model tragedy because the fate of Europe was determined within this individual fate.”
—Stefan Zweig (18811942)