In this chapter, we saw that all markets are interconnected: What happens in any given individual market affects countless other markets. Take a simple trip to the grocery store to purchase chocolate chip cookie dough ice cream. Before that single container of ice cream could make it into your hands, a Wisconsin dairy farmer milked cows, Brazilian processors distributed sugarcane, and the cacao plant was harvested. And that’s just three of the many markets that contributed to the production of the ice cream. Many more markets—such as the market that produced the ice cream packaging—were also involved. This coming together of individual markets to produce a single good, and how they jointly influence one another, is one example of general equilibrium in action.

General equilibrium allows us to consider a wide variety of concepts that partial equilibrium cannot address. Issues about the desirability of economic outcomes can be explored using the conditions for exchange, input, and output efficiencies. If certain conditions are met, we saw that the free market will generate an efficient outcome without any intervention. In reality, however, these conditions are often not met. We’ve already extensively discussed in Chapter 9, Chapter 10 and Chapter 11 one of these breaks in conditions, market power. In Chapters 16 and 17, we look at more ways in which market failures can lead to inefficient outcomes.