Economic Preliminaries

Abstract

In this chapter a general equilibrium model of the economic system is developed, called the Arrow-Debreu model. This chapter is based on Debreu (1959), where a complete exposition of this model is given. In the Arrow-Debreu model both the value and the distribution of all goods and all services in the economic system is determined, the central questions of the economic science. Therefore, this model yields the fundamentals for most of modern economic theory. The Arrow-Debreu model has been the subject of extensive research during the last forty years and has led to an impressive collection of results and a solid body of knowledge. The conclusions of the investigations into this model are summarized in many nice textbooks, like Arrow and Hahn (1971), Mas-Colell (1985), and Hildenbrand and Kirman (1988), on which this chapter also relies heavily. In this monograph new results concerning the Arrow-Debreu model are given. Also, various extensions of this model are considered. The purpose of this chapter is to present the Arrow-Debreu model, to give an overview of the various assumptions made in this monograph with respect to the basic elements of this model, and to discuss the reasonability of these assumptions. Moreover, this chapter gives rise to a number of questions not solved by the Arrow-Debreu model. These questions are addressed in the various parts of this monograph.