Discussion
A necessary (but not sufficient) condition for the existence of a general equilibrium is .................. .
Answer: A
The necessary condition is that the number of independent equations and number of unknowns must be the same.
Leon Walras represented the economy as a system of simultaneous equations for demand and supply in every market, with prices and quantities as unknowns. For a solution to exist, he argued, the number of independent equations must equal the number of unknowns. Later economists such as Abraham Wald showed that this counting condition is not sufficient: a solution may still not exist or may be economically meaningless, for example with negative prices.
Equal prices for all goods, or equality between factor supply and goods prices, are not conditions of general equilibrium; the other options mix unrelated quantities.
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