How to read this
At any prices, excess demand, demand minus supply, says which markets are out of balance. Good 3 is the numéraire, so every point of the plane is a price vector. On the blue curve market 1 clears, on the red curve market 2; the equilibrium is where they cross.
- Drag the orange point: the bars show which goods are in excess demand and which in excess supply at those prices.
- The dotted curve, where market 3 clears, passes through the same point: Walras' law.
- Move : multiplying all prices changes nothing.
Prices
The economy
Firms A and B make good 3 from goods 1 and 2. Alpha owns firm A, Beta owns firm B.
Where each market clears
, and : the prices at which market 1, 2 or 3 clears. The equilibrium is where all three meet; the current prices can be dragged.
The three markets at these prices
Walras' law: the values add up to zero
The value of excess demand, , for each good. Positive and negative values always cancel, at any prices, not only in equilibrium: if two markets clear, so does the third.