Economic equilibrium

"There are many anticipators of marginal analysis. Three major names were Augustin Cournot (1801-1877), J. H. von Thünen (1783-1850), and H. H. Gossen (1810-1858). Cournot's originality and ingenuity can hardly be exaggerated. 200 small pages, he described and defined the downward-sloping , completely analyzed the maximization of profit under conditions of monopoly, advanced an ingenious explanation of pricing, proved that equilibrium price occurred when equaled , and exactly defined the market from which we call perfect competition and he called "unlimited competition." And the book went unread."

"There's a lot of misplaced criticism of equilibrium models. For explaining 1950-, 1960-, 1970-type business cycles, they're a lot more robust than some people give them credit for. The failure of wages and prices to adjust is no problem because there's a lot of reasons, many of them coming from contract theory and models of enduring relationships, that would lead one not to expect the current real wage/price to adjust to clear the current labor market. [...] What we mean by equilibrium is essentially two things. First, we set out to explain data on prices and quantities as resulting from the interaction of individual decisions; that's the key thing together with the notion that markets clear in some sense. That doesn't mean everybody has a job every period. The notion of clearing may be much more complicated and may involve lotteries. There are various responses why workers are unemployed. [...] Another thing is that these environments are sufficiently complicated so that it's not automatic that equilibria are optimal."