A scenario of general economic equilibrium may be articulated according to various degrees of detail and complexity. The essential feature of a general equilibrium, however, is the existence of economic agents gifted with endowments and the will to appear on the market either as consumers or as producers in order to take advantage of economic opportunities expressed in the form of offers to either buy or sell.

In this chapter, we discuss a series of general equilibrium models characterized by an increasing degree of articulation and generality. The minimal requirement for a genuine general equilibrium model is the presence of demand and supply functions for some of the commodities.

Model 1: Final Commodities

A general market equilibrium requires consumers and producers. We assume that consumers have already maximized their utility function subject to their budget constraints and have expressed their decisions by means of an aggregate set of demand functions for final commodities. On the producers' side, the industry is atomistic in the sense that there are many producers of final commodities, each of whom cannot affect the overall market behavior with his decisions. It is the typical environment of a perfectly competitive industry.

Hence, consider the following scenario. There exists a set of inverse demand functions for final commodities expressed by p = c – Dx, where D is a symmetric positive semidefinite matrix of dimension (n × n), p is an n-vector of prices, c is an n-vector of intercept coefficients, and x is an n-vector of quantities.