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Concept
A complete market is a theoretical construct in which all assets are available for trade and all risks can be perfectly hedged. This allows for optimal allocation of resources and perfect risk sharing among market participants, leading to an efficient market outcome.
Concept
State-contingent claims are financial instruments that pay off based on the occurrence of specific states of the world, allowing for risk-sharing and efficient allocation of resources under uncertainty. They are fundamental in understanding and modeling economic behavior in environments with uncertainty, as they enable agents to hedge against adverse outcomes and align incentives with potential future states.
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Complete markets are financial markets where all risks can be fully insured and all assets can be perfectly hedged, allowing for optimal allocation of resources. In such markets, every contingent claim can be replicated and priced, enabling efficient risk sharing among participants.
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General Equilibrium Theory is an economic framework that studies how supply and demand interact in multiple markets simultaneously, achieving a state of balance where all markets clear. It provides insights into the interdependencies of economic variables and the conditions under which economies can reach an efficient allocation of resources.
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General equilibrium is an economic concept where supply and demand balance across all markets simultaneously, leading to an overall state of economic stability. It assumes that all markets are interconnected, and changes in one market can affect others, requiring adjustments to restore equilibrium.
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