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Competitive equilibrium (also called: Walrasian equilibrium) is a concept of economic equilibrium, introduced by Kenneth Arrow and Gérard Debreu in 1951, [1] appropriate for the analysis of commodity markets with flexible prices and many traders, and serving as the benchmark of efficiency in economic analysis.
A-CEEI (and CEEI in general) is related, but not identical, to the concept of competitive equilibrium. Competitive equilibrium (CE) is a descriptive concept: it describes the situation in free market when the price stabilizes and the demand equals the supply. CEEI is a normative concept: it describes a rule for dividing commodities between people.
A competitive equilibrium is a price vector and an allocation in which the demands of all agents are satisfied (the demand of each good equals its supply). In a linear economy, it consists of a price vector and an allocation , giving each agent a bundle such that:
Market equilibrium computation (also called competitive equilibrium computation or clearing-prices computation) is a computational problem in the intersection of economics and computer science. The input to this problem is a market , consisting of a set of resources and a set of agents .
Likewise, firm 2's reaction function q2=R2(q1). The Cournot-Nash equilibrium occurs where the two reaction functions intersect and both firms are choosing the optimal output given the output of the other firm. The Nash equilibrium is widely used in economics as the main alternative to competitive equilibrium.
Equilibrium in perfect competition is the point where market demands will be equal to market supply. A firm's price will be determined at this point. In the short run, equilibrium will be affected by demand. In the long run, both demand and supply of a product will affect the equilibrium in perfect competition.
With equilibrium defined as 'competitive equilibrium', the first fundamental theorem can be proved even if indifference curves need not be convex: any competitive equilibrium is (globally) Pareto optimal. However the proof is no longer obvious, and the reader is referred to the article on Fundamental theorems of welfare economics.
Therefore, the sole equilibrium in the Bertrand model emerges when both firms establish a price equal to unit cost, known as the competitive price. [9] It is to highlight that the Bertrand equilibrium is a weak Nash-equilibrium. The firms lose nothing by deviating from the competitive price: it is an equilibrium simply because each firm can ...