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:
“Against classical philosophy: thinking about eternity or the immensity of the universe does not lessen my unhappiness.”
—Mason Cooley (b. 1927)
“Some people are under the impression that all that is required to make a good fisherman is the ability to tell lies easily and without blushing; but this is a mistake. Mere bald fabrication is useless; the veriest tyro can manage that. It is in the circumstantial detail, the embellishing touches of probability, the general air of scrupulous—almost of pedantic—veracity, that the experienced angler is seen.”
—Jerome K. Jerome (1859–1927)
“There is a relation between the hours of our life and the centuries of time. As the air I breathe is drawn from the great repositories of nature, as the light on my book is yielded by a star a hundred millions of miles distant, as the poise of my body depends on the equilibrium of centrifugal and centripetal forces, so the hours should be instructed by the ages and the ages explained by the hours.”
—Ralph Waldo Emerson (1803–1882)
“It has to be acknowledged that in capitalist society, with its herds of hippies, originality has become a sort of fringe benefit, a mere convention, accepted obsolescence, the Beatnik model being turned in for the Hippie model, as though strangely obedient to capitalist laws of marketing.”
—Mary McCarthy (1912–1989)