Question

4. Explain the process of adjustment to equilibrium in Walras’s and Marshall’s models, and what are the similarities and differences in the Walrasian and Marshallian concepts of stability?

Answer 1

• In walrasian system equilibrium is defined by the price which equals quantity demanded and quantity supplied
• Marshall defines equilibrium as the quantity which equals demand price with supply price
• Therefore the walrasian adjustment process works through price movement's
• And marshallian adjustment process works through quantity movements
• According to mardhallian model,if there is no marshallian stability then if the prices go up, then under variable returns there is the question of whether to increase the production or not
• For the industry as a whole there is a downward sloping demand curve
• But for individual firms the demand curve is perfectly competitive
• While walrasian stability is associated with the theory if pure exchange
• In walrasian view if exchange there was a convergence of both prices and quantities to the market equilibrium

Difference between marshallian and walrasian stability :

• Marshall's view quantities respond to changes in prices
• While walras considers prices to be responding to changes in quantities
• Walrasian stability is based on a short run response
• While marshallian stability is based on a long run response