Editing General equilibrium theory (section)

===Marshall and Sraffa===
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In [[partial equilibrium]] analysis, the determination of the price of a good is simplified by just looking at the price of one good, and assuming that the prices of all other goods remain constant. The [[Alfred Marshall|Marshallian]] theory of [[supply and demand]] is an example of partial equilibrium analysis. Partial equilibrium analysis is adequate when the first-order effects of a shift in the demand curve do not shift the supply curve. Anglo-American economists became more interested in general equilibrium in the late 1920s and 1930s after [[Piero Sraffa]]'s demonstration that Marshallian economists cannot account for the forces thought to account for the upward-slope of the supply curve for a consumer good.

If an industry uses little of a factor of production, a small increase in the output of that industry will not bid the price of that factor up. To a first-order approximation, firms in the industry will experience constant costs, and the industry supply curves will not slope up. If an industry uses an appreciable amount of that factor of production, an increase in the output of that industry will exhibit increasing costs. But such a factor is likely to be used in substitutes for the industry's product, and an increased price of that factor will have effects on the supply of those substitutes. Consequently, Sraffa argued, the first-order effects of a shift in the demand curve of the original industry under these assumptions includes a shift in the supply curve of substitutes for that industry's product, and consequent shifts in the original industry's supply curve. General equilibrium is designed to investigate such interactions between markets.

Continental European economists made important advances in the 1930s. Walras' arguments for the existence of general equilibrium often were based on the counting of equations and variables. Such arguments are inadequate for [[Nonlinear system|non-linear systems]] of equations and do not imply that equilibrium prices and quantities cannot be negative, a meaningless solution for his models. The replacement of certain equations by inequalities and the use of more rigorous mathematics improved general equilibrium modeling.