General Equilibrium Model

A General Equilibrium Model is an economic framework that examines how different markets—such as for goods, services, labor, and capital—interact simultaneously within an economy. It analyzes how prices and quantities adjust across all markets to reach a state where supply equals demand everywhere, ensuring everything produced is ultimately purchased. This interconnected approach helps understand how changes in one part of the economy, like a new tax or technological innovation, ripple through other sectors, providing a comprehensive view of economic stability and resource allocation.