Walras' Law

DEFINITION of 'Walras' Law'

An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another market so that it balances out. So when examining a specific market, if all other markets are in equilibrium, Walras' Law asserts that the examined market is also in equilibrium. Keynesian economics, by contrast, assumes that it is possible for just one market to be out of balance without a "matching" imbalance elsewhere.

BREAKING DOWN 'Walras' Law'

Walras' law is named after French neoclassical economist Léon Walras, who created general equilibrium theory and founded the Lausanne School of economics. Walras' famous insights can be found in the book Elements of Pure Economics, published in 1874.

RELATED TERMS
  1. General Equilibrium Theory

    General equilibrium theory studies supply and demand fundamentals ...
  2. Competitive Equilibriums

    An equilibrium condition where the interaction of profit-maximizing ...
  3. Radner Equilibrium

    A theory suggesting that if economic decision makers have unlimited ...
  4. Scarcity Principle

    An economic principle in which a limited supply of a good, coupled ...
  5. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
  6. Neoclassical Growth Theory

    An economic theory that outlines how a steady economic growth ...
Related Articles
  1. Term

    What Is Equilibrium?

    Equilibrium is a state of balanced supply and demand.
  2. Economics

    What is Deadweight Loss?

    Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  3. Economics

    What is Supply & Demand?

    The law of supply and demand is one of the most basic principles in economics. In simplest terms, the law of supply and demand states that when an item is scarce, but many people want it, the ...
  4. Economics

    What's a Price Ceiling?

    A price ceiling is the maximum amount a seller can charge for a product or service.
  5. Economics

    Macroeconomics: Schools Of Thought

    By Stephen Simpson The field of macroeconomics is organized into many different schools of thought, with differing views on how the markets and their participants operate. ClassicalClassical ...
  6. Options & Futures

    Game Theory: Beyond The Basics

    Take your game theory knowledge to the next level by learning about simultaneous games and the Nash Equilibrium.
  7. Economics

    Why Laws Won't Prevent Financial Bubbles And Crashes

    We look at past government financial legislation, and see why it just doesn't work.
  8. Entrepreneurship

    Zoning Laws for Home Based Businesses

    Understand what types of home-based businesses are allowed and what types of businesses aren't allowed. Learn what to do to ensure zoning compliance.
  9. Bonds & Fixed Income

    Can Keynesian Economics Reduce Boom-Bust Cycles?

    Learn about a British economist's proposed solution to a common economic problem.
  10. Entrepreneurship

    Make Sure Your Business Complies with These 3 Environmental Laws

    Discover why 1970 is considered the year of the environment, and learn about several major environmental laws with which businesses must comply.
RELATED FAQS
  1. Is there an easy way to calculate the law of supply and demand for small business?

    Understand how small businesses make basic calculations of law of supply and demand principles and how supply and demand ... Read Answer >>
  2. Is the law of supply and demand a law or just a hypothesis?

    Learn about the strengths and limitations of supply and demand economic theories, and how they are used to predict and guide ... Read Answer >>
  3. How does the law of supply and demand affect the housing market?

    Learn about the law of supply and demand, the relationship between supply and demand and how the law of supply and demand ... Read Answer >>
  4. How does a lack of demand affect financial markets?

    Discover how a lack of demand affects financial markets. A lack of demand leads to a new price equilibrium, as prices dramatically ... Read Answer >>
  5. Why is Keynesian economics sometimes called depression economics?

    Learn how in observing the effects of the Great Depression, Keynes identified flaws in classical economic theory particularly ... Read Answer >>
  6. Why are there no profits in a perfectly competitive market?

    See why economic profits are theoretically impossible in a perfectly competitive market and why some economists use perfect ... Read Answer >>
Hot Definitions
  1. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  2. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  3. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  4. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  5. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  6. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
Trading Center