ABSTRACT
One of the significant advances in economic theory in the twentieth century has been the development of general equilibrium analysis which explores the possibility of simultaneous equilibrium in multiple markets, as opposed to the older partial equilibrium analysis of Alfred Marshall which studies the possibility of equilibrium in single market in isolation. Today, applied microeconomic work and much of modern macroeconomic theory are developed in a general equilibrium framework. Individual rationality embodies idea that if two people trade voluntarily, that trade must leave each person at least as well off as before they trade; if trade hurts either consumer, they will have no incentive to engage in such an exchange of goods. Pareto efficiency embodies the idea of non-wastefulness in allocating the total supply of goods at the disposal among consumers. At a Pareto efficient allocation, it is not possible to reallocate the goods so as to make one consumer better off without hurting someone else, so it is non-wasteful.
