Introducing Equilibrium Concepts into a Contested Field
Chapter 2: Various concepts of equilibrium in economics
In a decentralized economy, plans of the involved agents can be coordinated either by the market process – that is, by adjustable prices and the flexible response of demand and supply – or by the contract seeking forces driven by bargaining agents or by the voting power of the electorate. ‘Various concepts of equilibrium in economics’, we put forward the idea that market, contractual and political economy outcomes are rather a by-product of the distributional contest, which is in the background of all economic actions. This view disagrees with the traditional conviction that income distribution is a sort of by-product of market processes, bargaining situations or elections. The chapter illustrates all three channels for the income distribution contest by taking the example of bandwagon and snob effects in the goods market equilibrium, the efficient exchange of goods between households in the bargaining framework and the rational partisan business cycle, which can explain equilibrium values for unemployment and the inflation (rate).
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