Theory of Exchange and General Equilibrium

So far we have not brought producers and consumers together. The reason for this lies partly in the fact that we have not yet laid down any principles of exchange and allocation. Such principles are not easy because of the many variables involved and the possible variety of assumptions which can be made. The next section sets out the axioms of exchange. It deals only with pure exchange, that is to say, exchange in a system where there is no production or where production has taken place and only the exchange of such production stocks is being considered. This approach does highlight the essential features of exchange and allows us to discuss the neoclassical version of the pure exchange model in Section 9:3. A more general exchange model which incorporates production as well as consumption is included in Section 9.4. In both Section 9.2 and 9.3 attention centres on the formal properties of such exchange models and in particular discusses the existence of equilibrium in such models. The systems discussed in Sections 9.3 and 9.4 are rather general and only the minimum number of production axioms are brought into play. If we are prepared to make more rigid assumptions we can obtain more information. Thus in the final section of this chapter we consider general equilibrium in an open Leontief model.