Walrasian equilibrium

Competitive equilibrium (also called: Walrasian equilibrium) is the traditional concept of economic equilibrium, appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis. It relies crucially on the assumption of a competitive environment where each trader decides upon a quantity that is so small compared to the total quantity traded in the market that their individual transactions have no influence on the prices. Competitive markets are an ideal standard by which other market structures are evaluated.

A competitive equilibrium (CE) consists of two elements:

These elements should satisfy the following requirement:

Often, there is an initial endowment matrix ${\displaystyle E}$: for every ${\displaystyle i\in 1,\dots ,n}$, ${\displaystyle E_{i}}$ is the initial endowment of agent ${\displaystyle i}$. Then, a CE should satisfy some additional requirements:

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